Arun is running a moderately successful retail business, and one of his biggest competitor is a multinational company (MNC), let’s call it XYZ. However, he is perplexed at how MNC XYZ can offer goods at a much cheaper price than him. He is told that its because of XYZ’s business of scale, its advanced inventory management, etc. He is made to believe that XYZ wins because of its better management capabilities and deeper pockets. It is a lost war.
But the real story lies elsewhere.
When Arun earns a profit of Rs 100 in India, he pays an Income Tax of Rs 35. Thus, leaving him with Rs 65. XYZ on the other hand pays a tax of Rs 1.20 (on its global income) for every Rs 100 it earns. It, thus, has Rs 98.80 vis-a-vis Arun’s Rs 65 left in its pocket. Surely, XYZ can afford to sell things at a cheaper price. This is not to say other factors do not play a part in XYZ’s success, but certainly one of the biggest factors is Tax.
It is not XYZ alone. An article published in investopedia listed 18 MNCs that paid ZERO income tax between 2008-2015. The likes include companies like Pepsico, General Electricals, etc.