China’s decision to nearly double its corporate tax on foreign companies could create a unique strategic opening for India. The Chinese government is on the verge of passing a new law that will equalize the corporate tax on local and foreign businesses. Both will give up 25% of their profits to the taxman. This means that Chinese firms will see a drop in their tax rates—from 33% to 25%.
Foreign firms will see a rise in their tax rates—from 15% to 25%. What China is trying to do is encourage local enterprises and discourage foreign enterprises. The latter have poured in $600 billion as foreign direct investment since reforms began in 1979. An additional $60 billion flows in every year.
It will be interesting to see how much of this money now changes course, after a near doubling of tax rates, and seeks another country to flow into. India is one choice, and the government should do its utmost to grab these footloose billions, es- pecially at a time when there is a crying need for better roads, ports and other type of infrastructure.