Budget 2013: Chidambaram lays on super-cess shocker for India inc

Finance minister P Chidambaram's proposal on the corporate tax front in Budget 2013 has not been well received by India Inc, with the hike in surcharge coming as a shock to them.

The surcharge on domestic companies whose taxable income exceeds Rs 10 crore has been increased to 10% from 5%. Foreign companies with taxable income exceeding R10 crore will shell out 5% as surcharge against 2% earlier.

"Tax on the super-rich was perhaps a compulsion on the part of the FM to raise additional revenue to address fiscal deficit. However, the increase of surcharge by almost 100% on Indian as well as foreign companies may not go down well with the corporate sector," said Sanjay Sanghvi, partner at legal advisory firm c.

Budget 2013 proposes to extend the concessional tax rate of 15% on dividend received from a foreign subsidiary company for the 2014 fiscal. Similarly, dividends distributed by foreign subsidiaries to their parent Indian firms will not come under the dividend distribution tax (DDT) net.

"The proposal to do away with DDT for dividends received by Indian firms from their foreign subsidiaries is beneficial for companies with significant overseas operation. This cascading effect, which was earlier only for domestic subsidiaries, is now going to be available for the foreign ones as well. So there is an alignment of both which is positive," said Subramaniam Krishnan, partner, financial services & taxation at consulting and audit firm Ernst & Young. "The surcharge hike means more cash outflow for companies. But the FM wanted to widen his tax collection net," he said. "Even though the magnitude of hike was unexpected, the FM could have increased the base rate of tax which he didn't, and that is a positive."

The recent past has seen many leading Indian companies increasing the quantum of royalties to be paid to the foreign parent company. Hindustan Unilever recently increased the royalty payment to Unilever from the current 1.4% of turnover to 3.15% in a phased manner till March 31, 2018. ACC and Ambuja Cements increased the quantum of royalty to Holcim to 1% of net sales. An analysis by proxy advisory firm IIAS shows that ever since the government relaxed the restrictions on royalty payment in December 2009, the top 20 royalty paying companies have remitted R3,601 crore as royalty payments, up from R1,196 crore five years ago.

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