The Corporate Tax Rate (CTR) has been reduced in the Budget 2019 from 30% to 25%. While the 30% CTR was applicable on companies with a 250 Crore turnover, the threshold for 25% CTR has been increased to 400 Crore. The Finance Minister argued that it covers almost 99.3% of the companies. In addition to the CTR, there is surcharge levied on specific income and also cess above all. Even though the move to reduce the CTR is welcomed in the industry, it is not enough to attract more foreign investment. This is for two reasons. Firstly, because most of these foreign entities would have turnover above 400 crores and secondly, because the CTR in countries like China, the United States and Singapore is much cheaper than India.
United States levies flat 21% CTR on all companies plus taxes may be levied by the individual states. Like Washington levies Business and Occupation Tax on revenues rather than the income. In China, while the CTR is 25%, special rates are levied on small scale enterprises about 10 or 20% and 15% for a advanced technological corporate and special rates for many more encouraged business. CTR in Singapore is as less as 17% plus many other rebates and benefits.
According to the data provided by Organisation for Economic Co-operation and Development (OECD) (click here), in 2017, India had the highest effective corporate tax rate at 44.1%. Effective corporate rate tax means essentially all the taxes paid by the a corporate which includes CTR, dividend tax, capital gains tax etc.
Reduction in CTR may seemingly reflect well, but the markets are not responding positively. Extending the reduction to the larger corporates would have attracted more foreign investment. While the deal of “taking it from the super rich” seems fair, it may not be seen very positively by the foreign investors.
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