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Cut corporate tax to be competitive: KPMG

India's corporate tax rate is higher than its Asian neighbours, and it needs to cut the rate to attract more foreign direct investment (FDI), reports A Khatri.

business Updated: Jul 26, 2007 02:05 IST
Archana Khatri

India's corporate tax rate is higher than its Asian neighbours, and it needs to cut the rate to attract more foreign direct investment (FDI), an annual global survey by tax consulting firm KPMG said on Wednesday.

Echoing the trend in the global economies, KPMG's global annual survey says that world over the tax rates have declined, particularly in European Union and the OECD (Organization of Economic Cooperation and Development) that groups developed nations.

The survey also shows that corporate tax rates in some Asian economies like HongKong, Singapore, Malaysia are significantly lower than those in India. Further, significant reductions are expected in the UK, Germany, Spain, Singapore and China, it said. "Therefore, we believe India should post-haste implement the Kelkar Committee recommendationsof reduction of corporate rates to 30 per cent. This is particularly so as various exemptions under domestic tax laws are being progressively phased out," KPMG said in a statement.

Sudhir Kapadia, National Head Tax & Regulatory Services, KPMG India said, "Lower corporate tax rates can provide stiff competition to India for attracting Foreign Direct Investment." KPMG says HongKong’s corporate tax rate is 17.5 percent, Singapore’s Further, next year, significant reductions are in the pipeline in the UK, Germany, Spain, Singapore and China, it adds.

The Survey also highlights increasing importance of indirect taxes as a revenue gathering strategy in many countries. "In fact many countries are either rationalising or increasing indirect taxes," said Harishanker, KPMG's national head for indirect taxes, which include excise, customs duties and service taxes.

"Our India experience equally underlines the growing importance of indirect taxes with the introduction of VAT (value added tax) and the stated implementation of GST (goods and services tax) by April 2010. Therefore it is imperative we focus on the implementation of GST by 2010 and rationalise indirect taxes, to avoid multiplicity of taxes, ensure revenues/ compliance and provide a better and sound tax administration," the statement said.

This year’s survey compares corporate income tax rates as on January 1 each year from 1993 to 2007.