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April 26, 2009

"Indian corporate tax rate way above global average"

As part of a debate in the Economic Times, Amit Mitra of FICCI, makes the case for why corporate taxes are too high in India.
The average tax rate globally stands at 25.9% in 2008 while that of India stands at 33.9%. This figure includes a 10% surcharge and a 3% education cess. In other words, corporate tax rate in India is almost eight percentage points higher than that of the global average. And this, without adding the impact of Dividend Distribution Tax (DDT) and Fringe Benefits Tax (FBT) levied on corporates.

Furthermore, the global average tax rate has been coming down over the years. In 2006 it was 27.2%, down to 26.8% in 2007. Unfortunately, India has moved in the opposition direction. The DDT was raised from 12.5% to 15%, education cess from 2% to 3% and ESOPS were subjected to FBT. Even for MAT companies, the rate has gone up and its base widened.

...A look at the tax rates of other countries does reveal that Indian companies are charged higher tax rates. For instance, the corporate tax rate in Bulgaria is 10%, Hong Kong 16.5%, Egypt 20%, China 25%, Netherlands 25.5%, Malaysia 26% and UK 28%. Ficci feels that there is scope for reducing corporate tax rate to around 25%, which will result in larger revenue collections owing to the Laffer Curve effect in India. Whenever tax rates have been reduced in India, the collections have invariably gone up.