Industry demands US-like tax overhaul

NEWDELHI: 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 tax overhaul.

The US House of Representatives and Senate have passed tax overhaul proposals, though little 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 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.”

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 ₹5 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 firms incorporated from April 1, provided they do not claim any exemptions.

Shobana Kamineni, president of the Confederation of Indian Industry (CII) said the corporate tax roadmap should include reducing corporate tax rate to 18% at the earliest with withdrawal of tax incentives and exemptions and withdrawal of surcharges and cesses.