Posted on 05/23/2003 6:01:07 PM PDT by nwrep
KPMG Decries High Corporate Taxes in India, Wants Pared to 25%
Our Markets Bureau in Mumbai
Business Standard, February 28, 2003
KPMG wants corporate tax rates pared to 25 per cent
Corporate tax rates should be further reduced to 25 per cent and the difference in tax rates between domestic and foreign companies should be removed, according to KPMG.
The consultancy major has sought further relaxations in the recommendations made by the Kelkar Committee and, according to it, corporate tax rates need to be reduced in line with the rates prevailing in other countries. The suggestion comes in the backdrop of a proposal to exempt dividend income from tax.
According to KPMG Corporate Tax Rates Survey 2002, other Asian countries' corporate tax rates are significantly lower compared with India. For example the tax rates in Hong Kong, Singapore and Malaysia are 16 per cent, 24 per cent and 28 per cent, respectively. These countries are also developing their economies and their lower tax rates can provide stiff competition to India in attracting foreign direct investment (FDI).
The survey has pointed out that "a look at the tax structure of China, Indonesia, Korea, Malaysia and Singapore shows that incentives for the development of infrastructure facilities do exist in some form or the other. The corporate tax rate needs to be aligned to those of the other Asian countries as otherwise these countries may get preference for FDI."
The survey has also pointed out to the need for tax incentives for research and development (R&D) as in the case of China, Indonesia, Korea, Malaysia and Singapore. "Countries all over the world have recognised that R&D must be encouraged," according to the survey. Singapore and Malaysia, for instance, offer weighted deduction of 200 per cent for such expenditure.
KPMG has also suggested tax holidays for undertakings located in free trade zones, software technology parks, electronic hardware technology parks among others.
Tax demand arising on account of penalty orders passed simultaneously with assessment orders should be payable after the completion of the first appellate proceedings.
The Kelkar panel has recommended that orders imposing penalty should be passed simultaneously with assessment orders as, currently, the penalty is levied after almost a decade after the assessment and it becomes difficult to recover the demand from the taxpayer.
"The tax demand arising out of penalty proceedings should not be simultaneously collected by the assessing officer with the tax demand arising out of assessment proceedings as this will cause undue hardship for the tax payer. If the tax payer challenges the assessment order and the penalty order in appellate proceedings and fails on his challenge before the first appellate authority, only then the tax demand relating to the penalty order should become payable. This would be in the interests of equity and natural justice," KPMG has said.
KPMG has also recommended that payments to non-residents should be treated as deductible in the year in which the liability to pay was incurred. At present, as per Section 40(a)(i), payments made to non-residents are allowed as a deduction only in the year in which the tax deducted at source has been paid.
These payments are debited to the profit and loss account of the year in which the liability to pay has been incurred. This causes a divergence between the book profit and taxable income.
Heavy levy
According to another poster, IIRC, 35% for domestic companies; 42% for foreign.
Personally, I'd rather have a little mouse encourage them to raise the foreign corporate tax rate to 66%.
Maybe the USA could do this for our software industry or perhaps some other industries that need to be employing people.
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