It is time to bring a stop to the futile race to the bottom when it comes to corporate taxes, which has given preferential treatment to large corporations and widened the gap between the haves and have-nots.
The Group of Seven countries -- the U.K., the U.S., France, Canada, Germany, Italy and Japan -- reached an agreement during their summit in England to institute a minimum corporate tax of at least 15%.
It is an unusual measure that places universal restrictions on taxation systems, which are deeply related to national sovereignty. It was an initiative led by the administration of U.S. President Joe Biden, who called for higher corporate taxes.
To increase the competitiveness of their countries' private companies, major governments have been lowering corporate taxes from 40-50% down to 20-30%.
There have been a series of small to mid-sized up-and-coming countries bringing their corporate taxes down to around 10% to attract foreign investment. Such places are known as tax havens.
Because of such competition, corporate tax revenue in many major countries dropped, forcing governments to cover burgeoning social security costs with consumption taxes. In other words, that burden was shifted from the shoulders of major corporations to the public's.
The big corporations did not use the money they saved through lower taxes to pay higher wages, but to bolster stock performance. As a result, the wealthy who had many shares became even wealthier.
With the coronavirus pandemic, the gap between the wealthy and the poor grew even more serious. While unemployment became increasingly more common among low-income populations, massive IT companies reaped great profits from intensifying digital commerce. But because such companies have moved their bases to tax havens, they do not pay sufficient taxes for the extra revenue they have gained.
The finances of the G-7 countries degraded considerably due to massive unemployment measures they had to introduce when hit by the coronavirus pandemic. If the countries get in step with each other on a minimum corporate tax, however, it becomes easier to raise it. And if the difference is in turn used toward unemployment measures, it will lead to reducing the wage gap and rebuilding finances.
It is now of utmost urgency that the agreement reached by the G-7 be spread throughout the world. A minimum corporate tax had been deliberated by some 140 countries and regions, but proved challenging. The Organisation for Economic Co-operation and Development (OECD) and other bodies, which are taking the initiative in this debate, are hoping to reach a consensus as early as July.
The focal point will be the response of such countries as Ireland and Hungary, whose minimum corporate tax rate is set below 15%. They have shown reluctance to agree to the proposal, out of concern that IT companies and other businesses will decamp, thereby leaving them with less tax revenue. We hope that countries with low minimum corporate taxes will adjust their tax systems appropriately.
Even if countries do reach a consensus, we will be left with challenges in the future. For example, minimum corporate taxes in Hong Kong and Singapore, which are considered tax havens for Japanese companies, are a little over 15%, so there is a possibility that Japanese companies will not be affected by the minimum corporate tax rate.
To truly prevent companies from getting away without paying their fair share of taxes, there is a need to raise the minimum corporate tax to more than 15%. The international community must work together to resolve inequalities.