Reducing Corporate Tax Can Help India Achieve a $5 Trillion Economy

Before the Union Budget 2019-20 presentation by the Finance Minister Nirmala Sitharaman, market participants highly anticipated a proposal to reduce corporate tax (CT) to 25% for all companies.

During the Budget presentation, the FM proposed to continue with the government’s plan to reduce the rates in a phased manner. Earlier, only companies having an annual turnover up to Rs 250 crore were included under the 25% CT slab. However, the FM proposed to extend the 25% CT benefit to all companies having an annual turnover up to Rs 400 crore.

After inclusion, up to 99.30% of companies in India fall under the 25% corporate tax slab now. What about the remaining 0.70% of the companies? According to reports, it has come to light that the remaining 0.70% of companies contribute up to 79% of the total corporate tax in India.

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According to a recent report released by the Organisation for Economic Co-operation and Development (OECD), India has one of the highest corporate tax in the world. Why is the effective tax rate so high in our country?

As per the tax norms in India, a company/enterprise is first required to pay taxes in the form of corporate tax. The firm is also expected to pay an additional 15% as dividend distribution tax (DDT) along with the surcharge. In addition to this double taxation, the individual earning more than Rs 10 lakh in the form of dividend income is further required to pay an additional 10% tax. 

During the time of globalisation, taxation plays a massive role in international competitiveness. With India having one of the highest CT against other major economies, the tax regime can prove to be unfavourable for global corporates.

It can only be hoped that the corporate tax is reduced to 25% for all companies in the next Budget. Not only with bringing down the CT boost the investment sector but also help India achieve the promised $5 trillion economy.