23rd November 2023
As always there are lots of developments to bring you in the world of global taxation, as countries continue to tackle corporate tax evasion and the avoidance of double taxation (as well as of course boosting inward foreign investment and trade exports). In the spotlight this time we feature one of the world’s largest economies, which is clamping down on tax evasion in the online gaming and solar power industries. For recruitment businesses placing contractors overseas, the message is clear: make sure that your contractor compliance management processes are robust at all times.
According to Reuters, in excess of $12bn have been evaded in taxes in India’s online gaming market, a staggering statistic by any stretch. Although the finance ministry refused to comment, a government official told reporters that “the amount for which show cause notices have been issued to online gaming companies is around 1 trillion rupees [c. £9.8bn]”. This latest move on the part of the Indian government sends out a very clear message that they will come after all companies that they suspect have partaken in any form of tax evasion in a bid to collect the tax revenues owed.
This has sent shockwaves throughout the online gaming industry in India, causing many industry insiders to lament what they perceive to be a blatant ‘money grab’. But why the uproar among industry players? Companies in the sector have already been hit hard with the introduction of a Goods and Services (GST) tax of 28% in October 2023 imposed by the country’s GST Council. This applies to all funds deposited by users to play on the platforms, whether gambling money or virtual assets. Indeed, any internet game falls under online gaming, according to the updated GST Act.
The changes apply across the board irrespective of whether the individual is playing a game of skills (such as rummy), which was previously taxed at 18% or games of chance (gambling and betting) which remain at the 28% level. Provisions have also been added to the Integrated Goods and Services Act regulations, affecting foreign suppliers who are now required by law to charge the new rates of GST to their Indian customers. This has had a major impact on the tax compliance obligations of companies, having to meet ever-changing and more stringent GST regulations.
Staying in the fifth largest economy, and the seventh largest country, in the world, we also discover that authorities are investigating alleged tax fraud by 40 of China’s leading solar power companies. According to Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, speaking to the The Global Times, the steps taken by Indian authorities amount to unfair targeting of Chinese solar photovoltaic (PV) companies. In July 2018, India had taxed imported solar products from China and Malaysia for a two-year period, having also launched an anti-dumping (protectionist tariff) investigation into such products coming from China, Thailand and Vietnam.
Boqiang went on to explain in the article that China has a competitive advantage given the cost-effectiveness of its solar power supply chain. These measures would only serve to increase the costs of PV system installation, thereby damaging the country’s transition to cleaner, greener renewable energy, he argued. He also noted that such a move wouldn’t impact China’s solar power industry given that India is a small export market for its companies. Indeed, this equates to 6.4% of its total export market share according to figures published by The China Photovoltaic Industry Association.
Contractor compliance management critical for global recruiters
In other news, reports would suggest that Egypt’s finance ministry is working on a new five-year fiscal tax programme to boost public income and entice investment. The measures, which are designed to boost confidence in the country’s economy, are set to include a fixed 5% tax on wages as well as a significant reduction in corporation tax (in some economic zones only) – from 22.5% to 10%. The government is also to provide tax incentives on new investment proposals, with companies and investors able to enjoy deductions, varying from 30-50% depending on the scale of the project.
The removal of tax and customs investment exemptions for both public and private enterprises have also raised tax revenues considerably by 27.5%, as revealed by Mohamed Maait, the country’s minister of finance. The IMF’s director of the Middle East and Central Asia, Jihad Azour welcomed the changes, saying, “Tax reforms constitute an essential factor in achieving tax justice, on the one hand, and the diversification of sources of revenue, on the other. I think Egypt has untapped space to increase budget revenues by abolishing tax exemptions, which can help to achieve social justice.”
Meanwhile, Taiwan’s finance minister, Chuang-Tsui yun, was hopeful that a tax agreement with the US would be ratified soon after many years of deliberation. The agreement, akin to a treaty, would help to combat tax evasion, promote investment and counter double taxation for both individuals and companies (not the case now given that formal diplomatic relations don’t exist between the two). Chuang was adamant that the accord could be finalised 2024, adding, “We hope that it can be signed before June next year. After signing it, the procedures on our side can be completed soon and the bilateral agreement will take effect.” She also mentioned the scale of the bilateral trade, with Taiwanese companies investing $28.5bn in the US and $26.6bn flowing in the opposite direction.
Elsewhere, Romania’s president Klaus Iohannis announced his country’s new fiscal package, which will raise national GDP by more than 1%. The measures include a 16% corporate tax on profits (but must not be less than 1% of turnover), a 2% sales tax on banks, the abolition of preferential VAT rates that apply to certain goods and services as well as excise duties on alcohol and tobacco. The tax burden on the self-employed is however set to rise. According to Profit.ro, this will generate revenues of over €4bn (expenditure savings included). Tax evasion is always never far from the agenda with finance minister Marcel Boloş hoping to recoup around €400m from financial fraud.
As we’ve seen in our latest selection of stories from around the globe, fiscal policy is very much at the heart of governments’ financial strategies. And in today’s climate of austerity with budget deficits growing, governments are on a mission to boost their tax revenues. The crackdown on tax evasion will give a much needed boost to national coffers. Recruitment businesses placing contractors abroad must remain vigilant when it comes to contractor compliance – failure to follow procedures could result in hefty financial penalties and even criminal proceedings and prosecution.
Are you unsure about your tax compliance obligations or other contractor issues, such as compliance processes and employment documentation? You’ve come to the right place. Our 6CATSPRO experts can help with all your questions and provide advice for more than 70 jurisdictions across the world.
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