To encourage investments the government in the past has provision for huge tax rebates. Former Finance minister of India Late Arun Jaitley tax slab of 25 %for companies that do not avail exemptions. The next Finance Minister, Nirmala Sitharaman, lowered the tax slab to 22 percent for old companies who do not avail exemptions and 15percent for the new buds.
Global tax bar
It’s notable that the rate of corporate tax is 17 percent in Singapore, 25 percent in South Korea, 20 percent in Vietnam, 21 percent in the US, and although it is 25 percent in China, it is only 15 percent in hi-tech industries.
The Corporate tax India
By reducing this rate, India has now become one of the lowest corporate tax countries in the world. But this step by the Indian system turned out to be counter-productive because all major countries brought down their corporate tax. In India, the corporate tax constitutes about 25 percent of the total tax revenue of the central government. This means that instead of 25 percent corporate tax in the past, the rate has now been reduced to 22 percent, which will reduce the potential income from corporate tax by at least 12 percent.
TPT Policy Advocacy and Recommendations
- India has already been proactively engaging with foreign governments in double taxation avoidance agreements, tax information exchange agreements, and multilateral conventions to plug loopholes. This proposal of a common tax rate, adds no benefits to the nation. It will further be problematic to enforce such a policy in a federal government structured country like India. A lower tax rate is a tool for India to alternatively push economic activity. If the proposal comes into effect, the country may experience a longer economic hangover than other developed nations with less ability to offer mega stimulus packages. Inclusive and unconditional policies must be designed in place of such inward-looking and protectionist plans.
- Tax avoidance is not just your problem originating in just one corporation rather it is global crime committed by different corporations of different territories. This leads to global consequences because these corporations do not pay their fair tax in the countries in which they operate and traumatize the economy of the domiciled nation.