High CorporateTax Ratesin India – A Key Impediment to Foreign Investments
||08th March 2018
Corporate tax rate is an important factor in determining the attractiveness of a country for foreign investment.Other things being equal, investments are likely to be larger in countries that have a relativelylower corporate tax rate. This probably is the case with India. Although India is one of the fastest growing economies and has a higher growth than developed economies, it has not received huge amounts of foreign investments. According to the UNCTAD’s World Investment Report (2017), India received US$ 45 billion of foreign direct investmentin 2016 compared to US$ 134 billion in China and US$ 62 billion in Singapore, both of which have lower corporate tax rates. Thus, a higher rate of corporate tax deters foreign investments in India.
At 30 per cent, Indiahas one of the highest corporate tax ratesin the world. Additional levies like surcharge and cess increase the tax burden to around 34.5 per cent.Comparatively, even in neighbouring ASEAN countries, the corporate tax rates are low. It is 17 per cent in Singapore; 20 per cent in Thailand, Vietnam and Cambodia; 24 per cent in Malaysia; 25 per centin Indonesia and Myanmar. China also has a lower corporate tax rate of 25 per cent compared to India. Thus, a higher tax rate makes cost of doing business in India significantly high. The Global Competitiveness Report 2017 by the World Economic Forum also highlights that higher corporate tax rate is one of the most problematic factors in India.
It has been observed thatforeign companies prefer to invest in India through Mauritius or Singapore due to lower corporate tax. India has a Double Taxation Avoidance Agreement (DTAA) with these two countries, which allows a foreign investor the option of paying tax either in India or in Mauritius/Singapore. The tax rates prevailing in Mauritius (15 per cent) and Singapore (17 per cent) are amongst the lowest in th...