Opinion Tax can be an incentive
Voluntary tax transparency framework can attract capital, generate employment
As India races towards surpassing the $ 5 trillion milestone, accompanied by a growing per capita income, a noticeable shift in consumer behaviour led by the younger generation is emerging. 
India’s rise as a global economic powerhouse, amplified by Prime Minister Narendra Modi’s recent visit to the US, has been extraordinary. With a focus on surpassing the $5 trillion milestone, the Indian economy faces the challenge of nurturing sustainable growth. The participation of key stakeholders, including the government, corporates, investors and civil society is crucial to achieving this goal. In an era where fiscal accountability and transparency hold paramount importance, tax transparency has emerged as a catalyst for sustainable growth. While India’s tax reforms have been awe-inspiring in magnitude and scale in recent years, the country needs a voluntary tax transparency framework to sustain the current economic growth.
This framework should incentivise organisations operating in India, including private companies, multinationals and public-sector units, to disclose their strategies and approaches towards domestic and international taxation. Such voluntary disclosures could also be linked to the environmental, social and governance (ESG) framework. Although voluntary, this framework could become a standard that every company follows to demonstrate its commitment to sustainability.
Tax transparency serves as a litmus test to gauge the contribution of each company to India’s growth story and provides valuable insights into the tax strategies of corporates. Such disclosures will attract more international investors who prioritise transparency and responsible tax behaviour over the single-minded pursuit of profits. The resulting influx of capital will create job opportunities, stimulate economic expansion and contribute to the country’s overall prosperity.
Globally, large investors have begun to take ESG scores seriously. India’s promotion of tax transparency will help the country in attracting larger capital inflows, particularly in sectors such as infrastructure and green energy. A voluntary framework could also foster healthy competition among companies encouraging them to disclose their tax strategies and engage in responsible tax practices to improve their ESG scores.
While corporates were prompt in embracing sustainability as a cornerstone of their strategies, taxation has largely eluded discussions around ESG matters. Transparency must extend beyond financial disclosures to encompass a broader spectrum including environmental practices, social contributions and governance policies of an organisation.
In recognition of the importance of ESG-related disclosures, the Securities Exchange Board of India has introduced the Business Responsibility and Sustainability Report (BRSR) Core, aimed at enhancing the reliability of ESG disclosures by the top listed companies. India’s journey towards becoming an economic powerhouse necessitates that companies voluntarily embrace transparency. For instance, companies could report environmental taxes related to carbon emissions, plastic usage, waste management and water consumption. By doing so, businesses can be incentivised to adopt greener practices, aligning economic growth with environmental objectives. The social dimension of tax transparency reporting could shed light on a company’s contribution towards aspects such as social insurance, healthcare, and pension premiums, and under governance disclosures, the framework can motivate companies to align their ESG policies with tax behaviour. Companies can do so by enhancing tax reporting and increasing stakeholder communication to foster robust corporate governance practices, accountability and transparency.
Globally, a tax transparency report (TTR) serves as a format for such disclosures providing annual voluntary information on a company’s global tax strategies. While some large companies voluntarily file these reports, the base erosion and profit shifting (BEPS) project initiated by the OECD is working towards addressing gaps and mismatches in international tax regulations which, over the years, has allowed many multinationals to minimise their tax outgo through creative tax structuring. Similarly, India can establish a voluntary framework for companies on the lines of TTR to solidify its economic foundations and cultivate a business environment centred around integrity.
While the need for tax transparency is urgent, the framework must be in sync with India’s commitment to facilitate the ease of doing business. It should motivate companies rather than push them to adopt tax transparency.
As India races towards surpassing the $ 5 trillion milestone, accompanied by a growing per capita income, a noticeable shift in consumer behaviour led by the younger generation is emerging. These individuals will prioritise a company’s ESG performance when they make a purchase or evaluate job prospects. Tax transparency, which falls under the broader umbrella of ESG, will carry considerable importance in influencing these choices.
The writer is Chairperson, PwC in India
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