New Delhi: Industry lobby groups on Wednesday asked finance minister Arun Jaitley to bring down corporate tax rates to make India an attractive destination for investment in view of the US Congress approving a major tax overhaul.
The US House of Representatives and Senate have passed tax overhaul proposals, though slightly different from each other. This could lead to corporate taxes coming down from 35% at present to 20%, once both Houses reconcile their respective versions of the legislation. This is expected to make investments in the US more attractive, which could force investors to pull back their investments from emerging market economies like India.
During the pre-budget consultations, Federation of Indian Chambers of Commerce and Industry (Ficci) president Pankaj Patel said the Indian government needs to adopt a US-like approach by reducing overall tax burden on Indian companies. “The US tax reform envisages complete exemption in respect of dividends declared by foreign subsidiaries of US companies. This is intended to incentivise repatriation of earnings into the US, which is expected to boost investment and consumption. Overall, it is expected that this reform proposal would spur economic growth and increase overall tax collections," he added.
Jaitley in his 2015-16 budget had announced the government’s intention to phase out corporate tax exemptions gradually while simultaneously bringing down corporate tax to 25% from the prevailing 30% over the next four years. However, in his 2016-17 budget, Jaitley lowered corporate tax rate for companies with a turnover of Rs5 crore or less to 29% plus surcharge and cess from 30% plus surcharge and cess. He also announced a corporate tax rate of 25% for all new manufacturing companies incorporated from 1 April, provided they do not claim any exemptions.
The finance ministry on 22 November set up a task force with Central Board of Direct Taxes member Arbind Modi as convener and chief economic adviser Arvind Subramanian as a special invitee to draft a new direct taxes code in the light of global best practices and the economic needs of the country.
Shobana Kamineni, president of the Confederation of Indian Industry (CII) said the roadmap for reduction in corporate tax rate for India should include reducing corporate tax rate to 18% at the earliest with withdrawal of tax incentives and exemptions and withdrawal of surcharges and cesses.
“The US Senate approved a tax overhaul last Saturday. UK plans to reduce the current rate of 20% to 17% with effect from April 2020. Singapore applies a tax rate of 17%. Emerging economies too have lower tax incidence," she added.
Industry lobby group Associated Chambers of Commerce of India (Assocham) in its submission said the corporate tax rate should be reduced to 25% as indicated by the government earlier to encourage large investment by domestic and foreign companies in India. “Considering that the US government is also in the process of making major tax cuts in US and other countries like Singapore and Middle East already have lower tax rates, the reduction of corporate tax rate will be the right step in the current environment," it added.
Sunil D. Shah, partner at Deloitte India said reduction in the corporate tax rate would be in line with the government policy of reducing the rate in a phased manner. “Rationalization of the rates would make India’s tax structure competitive with several other countries, encourage investment into India and promote India’s growth as a manufacturing and export destination. This aspect has acquired greater focus after the recent US tax proposals for reduction in the corporate tax rate," he added.