Children as collateral damage
Why in News
- Last month, in the midst of the dreaded second wave, a video went viral showing children seated on the floor packing corona testing kits. None of them were wearing masks or gloves.
- While everyone, the media included, reacted to the unhygienic manner in which RT-PCR kits were being packed, very few commented on the out-of-school child labour being exploited to perform the task.
- This is just one example of the larger fallout unleashed by Covid-19. The pandemic has rendered thousands of families unemployed and in such dire poverty that pushing kids to any kind of work is considered an option.
Child Labour during Pandemic
- It has been rightly observed that children, especially those from marginalised communities, are part of the larger collateral damage caused by the pandemic.
- The statistics of child labour in the country have always been alarming. Official figures dating back to the 2011 Census put the number of children and adolescents in the labour force at about 33 million.
- But going merely by this data is unrealistic because the numbers have not only gone up over the last decade but has been further compounded by the pandemic and the relaxation of labour laws.
- In fact, on World Day Against Child Labour, which falls on June 12, it is necessary to examine the situation that currently prevails vis-à-vis vulnerable children in this country. With schools closed, no mid-day meals and no access to online classes due to lack of smart phones, computers, or connectivity, the two waves of the pandemic have handed children a raw deal.
- While the boys are nudged to do just about any work to add to the household income, large number of under-age girl children are shifted to domestic chores, sibling care or married off in a hurry.
- Under-age marriage brings with it the problem of sexual exploitation, unsafe motherhood, and unpaid labour in the husband’s home.
Unorganised labour
- Children whose parents are out-of-work migrant labourers, marginal farmers, and daily wagers comprise nearly 80% of the workforce in the unorganised sector with limited or no access to social security and unemployment benefits.
- Most have been jobless since the past year and a half.
- Adolescents do not have the same bargaining power as adults, thus being a cheap source of labour. The impact of the Covid-19 pandemic on the economy is yet to completely unfold hence it is difficult to estimate the magnitude.
- However, there might be a sharp rise in numbers across all age groups and occupations unless immediate and sustained efforts are made to protect the rights of children.
- Unfortunately, online schooling of marginalised rural and urban children has not worked. A Ministry of Rural Development survey reveals that during the pandemic only 8% of households with children or adolescents had access to online content.
- Recent household survey of school children in 20 districts of Uttar Pradesh found that as many as 1,28,000 children out of school.
- In November 2020, an ActionAid team conducted a study in 250 UP villages and identified 3,225 child labourers. Of these, 2,000 were enrolled in government schools.
- Due to closure of schools during the pandemic, 2,000 trained volunteers from his organisation are currently running classes in safe spaces with social distancing to ensure that children don’t get completely disconnected from education.
- Similarly, child labour-centric organisation, Work: No Child’s Business (WNCB) also conducted a scoping study during the pandemic in three northern States.
- Its report ‘A Situation Analysis of Child Labour in India — Rajasthan, Delhi and Bihar & Alternate Livelihood Options’ revealed that the vulnerability of workers had increased many-fold during the pandemic.
- Also, the root cause for increased child labour was common to the three states: the households were poor, the landless had low assets and little education, came from vulnerable groups, and were engaged in informal sector occupations.
Safeguards needed
- The most important among these would be to ensure that local administrations map vulnerable children in their constituencies and review their status periodically. They should engage out-of-school children in informal educational activity and provide food to them and their families during State shutdowns.
- This will save children from being trafficked or pushed into labour. Businesses also need to be persuaded to ensure a child-free supply chain.
- And once schools open, the effort to get all children back into the classroom must be undertaken on a war footing.
GS PAPER – III
Strong support for a global minimum tax
Why in News
- In October 2020, the OECD released a series of major documents in connection with the ongoing G20/OECD project titled ‘Addressing the Tax Challenges of the Digitalisation of the Economy’.
- These documents included the report on the Pillar Two Blueprint, which addressed the development of global minimum tax rules with the objective of ensuring that global business income is subject to at least an agreed minimum rate of tax.
- However, the Blueprint did not reflect agreement by member jurisdictions of the Inclusive Framework because there were political and technical issues that still need to be resolved.
- The Blueprint was meant to provide a solid basis for future agreement and to bring the process to a successful conclusion by mid-2021.
Blueprint on Pillar Two
- The Blueprint on Pillar Two lays down the features of a systemic solution — known as the Global Anti-base Erosion (GloBE) proposal — to address remaining Base Erosion and Profit Shifting (BEPS) challenges.
- Simply stated, it seeks to ensure that all large and internationally operating businesses pay at least a minimum level of tax, regardless of where they operate.
- While the Blueprint includes the design of four rules to achieve this objective, the Income Inclusion Rule (IIR) constitutes the most important feature of the GloBE proposal.
- The IIR triggers the inclusion of low taxed income at the level of the shareholder where the income of a controlled foreign entity/permanent establishment is taxed at below the minimum tax rate.
- According to the OECD, agreement on Pillar Two could increase global corporate income-tax revenues by $60-100 billion per year, or up to around 4 per cent of global corporate income-tax revenues.
- The specific parameters with respect to the global minimum tax rate were a matter that is the subject of intensive negotiations in the Inclusive Framework and accordingly was not reflected in the Blueprint.
- However, for the purpose of the economic impact assessment the OECD had assumed a minimum tax rate of 12.5 per cent.
- The communiqué issued on June 5 at the close of the G-7 Finance Ministers’ meeting, which included a statement on the global tax proposals, is therefore significant.
- The communiqué as well as the individual statements made by some of the Finance Ministers indicate not just a strong support to the global tax changes, but an unprecedented commitment for a momentum for achieving a global minimum tax rate of at least 15 per cent.
- The confirmation of G7 support for the project is an important step in advancing the work on the proposals for fundamental changes to global tax rules.
- However, agreement on the proposals requires consensus among the 139 jurisdictions that are members of the Inclusive Framework.
- Efforts will now be focused on trying to achieve that consensus in July when the G-20 Finance Ministers meet next.
Effective tax rate
- Under the GloBE proposals, the minimum tax rate refers to an effective tax rate (ETR), not the nominal tax rate. ETR is determined by applying the tax base and covered taxes on a country-by-country basis.
- Hence, even if a consensus emerges on 15 per cent as the minimum tax rate, it does not mean that jurisdictions that have a nominal tax rate of 15 per cent or higher would not be impacted.
- Jurisdictions could have various features in their tax system which can drive the ETR lower than the nominal tax rate.
- Hence, multi-national enterprise (MNE) groups will need to review ETR of their subsidiaries on a country-by-country basis to determine if they could be impacted by the GloBE proposals.
- It is also important to note that all businesses will not be within scope of the Pillar Two proposals. The current proposal as per the Blueprint is that the GloBE rules would apply only to international groups with consolidated global revenue in excess of €750 million.
- Hence, to the extent an MNE group does not breach this threshold, it would be outside the ambit of the GloBE proposals.
- The proposals under Pillar Two represent a substantial change to the tax architecture and go well beyond digital businesses or digital business models.
- These proposals could lead to significant changes to the overall international tax rules under which businesses operate. It is important for businesses to follow these developments closely in the coming months and to consider engaging with the OECD and policymakers at both national and multilateral levels on the business implications of these proposals.
- Businesses also should evaluate the potential impact of these changes on their business models. If no agreement can be reached by the Inclusive Framework, it is expected that there will be more activity in individual countries on putting in place their own minimum tax rules. For example, The USA President’s ‘Made in America’ tax plan proposes a minimum tax rate of 21 per cent.
- The design work done on the Pillar Two likely would be a starting point for these unilateral actions, with deviations reflecting the particular country’s own interests. While a consensus based multilateral solution could lead to a more favorable environment for investment and growth, unilateral measures may further jeopardize the integrity of the international tax system.