The next cycle of the Committee Bureau meetings should contemplate the addition of annexures pertaining to the early protocol on addressing environmental challenges.

Next UN Ad-hoc panel Bureau meetings should mull new annexures on early protocol. (Image/Reuters)

By Mukesh Butani and Pranoy Goswami

There is a chorus among tax policy experts for the need to reorient the existing international tax legislation(s) to effectively capture environmental, social, and economic challenges faced by developing jurisdictions. Key challenges include rampant technological transitions, increased counts of inequality, and the environmental degradation across realms. Juxtaposed against these are the many levels of industrial advancements which entail the usage of fossil fuels, and avant garde schemes designed to foster inclusive and all-encompassing growth. The introduction of the Inclusive Framework’s Base Erosion Profit Sharing Two-Pillar solution to the milieu of verbiage on source versus market frameworks was novel and seismic. However, a fundamental issue highlighted by administrators from Global South nations is the pressing need for an international apparatus to synthesise sustainable development as a determinant for a tax-just future. Even though the Two-Pillar Solution, in particular Pillar Two, made a splash at galvanising a global minimum tax and according a blueprint for capacity development and uniformity, much remained to be fulfilled on the United Nations (UN) sustainable development goals (SDGs).

The negotiations propelled by the UN Ad-Hoc Committee Bureau (hereafter the Committee Bureau) to design a Framework for International Tax Cooperation witnessed a rally for addressing some of the red-carpet issues identified above. Nations such as India, Brazil, members of the Africa Group, et al steered a lion’s share of negotiations on the cause-and-effect relationship between input legitimacy and its impact on SDGs. Even though the revised draft of the Terms of Reference (ToR) captures the need to combat environmental challenges, it remains uncertain. Compounding this scenario is the constant agony faced by industrial behemoths such as global value chains (GVCs) in estimating the cap and trade required to adhere to the norms, meaning uncertainty galore for businesses. This emergence of GVCs and increased interest in their sustainability and resilience requires analysing supply chains as a whole and developing sound tax policies around them, not to forget the thrust on manufacturing that nations such as India focus upon.

This situation necessitates participants at the Committee circle to engineer and implement time-bound impact analyses. Such analyses should transcend from being merely economics-driven to being steadfast with revenue trends, investment histrionics, and employment generation. Member nations should tread with caution to ensure that businesses and industry associations faced with practical imbroglios for implementing changes to align their operations with a dynamic global tax order are made an integral part of stakeholder discussions in shaping domestic policies. Besides promoting the much-vaunted adage of transparency and horizontal equity, such discussions shall expand the spectra of domestic resource mobilisation efforts for the countries making such moves. 

The gamut of tax incentives should be examined and explored by member nations as a stimulant for retaining and, in fact, bolstering the investment climate of which these GVCs are a quintessential part. The interlinkage between tax incentives and SDGs under the umbrella of fairer and more effective mode of taxation, as propounded by the ToR, will achieve finality if the nations remain true to the spirit of the SDG target 17.16 (leveraging global partnerships for sustainable development).

The next cycle of the Committee Bureau meetings should contemplate the addition of annexures pertaining to the early protocol on addressing environmental challenges. These annexures should in turn envisage an architecture for acceptable forms of tax incentives in lieu of climate justice, prescribed periods for systematic review of such incentives, and a model code of conduct for agencies of member states to christen their endeavours. When analysing the basic structure of the United Nations Framework Convention on Climate Change (UNFCCC), the most authoritative legislation piece in the administration of climate-based emissions, one sees enormous attention devoted to countries’ emissions-reporting obligations. That is due to the fact that the UNFCCC was introduced almost simultaneously with the Kyoto Protocol, which imposes a quantitative restriction on carbon emissions. It is a policy designed to operate nationally or regionally — therefore on a downstream basis at the retail level — and concentrating on emissions control. In a similar vein, the Committee Bureau would do well to contemplate the efficacy of a juxtaposition to facilitate the smoother adoption of the “climate protocol” in question. This idea can be cast to stone by a high-powered committee, under the aegis of the Committee Bureau, and comprising administrators, academics, global tax heads, and civil society members who have previously contributed to the serendipitous growth of the UN policy dialogue at various levels. India, on account of increased counts of participation in discussions around early protocols, shall find itself at the vortex of negotiations in the two-year cycle culminating in 2027. Given its penchant for a greener tomorrow, the country holds the aces in crystallising diverse viewpoints and efficacies on behalf of the Global South. Equally, India cannot ignore its larger economic goal for generating employment in the manufacturing sector. The time is ripe for administrations to build consensus and inspire confidence among investors willing to move their GVCs to India as their aspirations may organically intertwine with the larger realm of “public interest”, a fundamental canon of international tax policy.