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.

In a review of corporate tax rates at the beginning of 2007 in 92 countries, it said the average rate in the EU was 24.2 per cent, compared with 27.8 per cent in the OECD countries, 28 per cent in Latin America and 30.1 per cent in Asia-Pacific. Some countries have made significant cuts, such as Turkey’s reduction from 30 per cent to 20 per cent and Bulgaria’s reduction by 5 per cent to 10 per cent. There are also reductions in the pipeline from Germany, Spain, the UK, Singapore, China and possibly in France, which should be reflected in future KPMG surveys.

KPMG said the trend among countries was to cut corporate taxes and increase indirect taxes. “The survey underlines the increasing importance of indirect taxes as a revenue gathering strategy in many countries with a tendency among competing nations to reduce corporate taxes to attract investment and shore up shortfall .