Changes in Corporate Tax in India Bring in Dissapointment

Corporate tax in India has seen a trend of increasing tax rates in recent years. Many firms had been expecting a reduction in the corporate tax rates in the Budget announced on 5 July 2019.

There are many issues to be dealt with such as slowing economy, rural distress, unemployment, weakening consumption, increasing fiscal deficit, and lack of investments. Instead of a direct reduction in the tax rates, the Finance Minister Nirmala Sitharaman has come up with a different strategy. 

The Finance Minister stated that the tax proposals aim to encourage startups and promote the digital economy. She committed upon a phased reduction in corporate tax rates.

Currently, the tax rate of 25% is applicable to companies with a turnover of up to Rs.250 crore. In the maiden budget, Sitharaman widened the scope of this slab and included companies with a turnover of up to Rs.400 crore.

Also Read: Budget 2019 Impact: Super Rich to Pay Higher Taxes

According to the statistics, about 99.3% of the companies fall under this category. That means, only 0.7% of companies will pay a higher tax rate. 

India is said to have had the highest statutory tax rate of 48.3% in 2018 as compared to the global average tax rate of 24%. The actual corporate tax consists of components such as headline tax, surcharge, cess, dividend distribution tax, and others.

Out of the 94 jurisdictions covered by the Organisation of Economic Cooperation and Development (OECD), India has levied the highest tax rate. It is found that the rate in Japan is 29.7%, Russia is 20%, and the UK is 19%.

In addition to the 25% and 30% of headline tax for Indian companies, the headline tax rate for foreign companies is at 40%. In addition, a surcharge of 7% is applicable to domestic companies having a taxable income of Rs.1 crore to Rs.10 crore and 12% for companies with a taxable income of above Rs.10 crore. In the case of foreign companies, surcharge rates are 2% and 5% respectively.

Industrialists are requesting the government to keep up the promise of lowering the corporate tax rates in the second term. This will lead to having more money for funding company growth and capex. It may also result in increased investment interest. A reduced corporate tax rate will encourage start-ups and provide a secure environment for their growth.

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