India, which has one of the highest corporate tax structures in Asia, will find it difficult to attract foreign direct investment (FDI) as other countries are reducing taxes further to boost investments. KPMG’s Corporate and Indirect Tax Rate Survey 2007 says that the world over corporate tax rates have reduced with taxes in other Asian countries significantly lower than India’s rate.

For example, Hong Kong’s corporate tax rate is 17.5 per cent, Singapore’s corporate tax rate is 20 per cent and Malaysia’s corporate tax rate is 27 per cent. For Indian companies with a turnover of Rs 1 crore and above, the effective tax rate is 33.99 per cent (30 per cent, plus surcharge of 10 per cent on tax and education cess of three per cent on tax and surcharge). But for foreign companies in India, the effective rate is 42.23 per cent.

Said Sudhir Kapadia, National Head Tax & Regulatory Services, KPMG India. “These countries are also in the process of developing their economies and with their lower corporate tax rates can provide stiff competition to India for attracting FDI. Further, next year, significant reductions are in the pipeline in the UK, Germany, Spain,Singapore and China.”

“Therefore, we believe India should implement the Kelkar Committee recommendation of reduction of corporate rates to 30 per cent. This is particularly so as various exemptions under domestic tax laws are being progressively phased out,” KPMG said. The global average in corporate tax has fallen from 38 per cent in 1993 to 26.9 per cent in 2007.

... contd.