The Budget 2008, to be released on 29th February is already under great speculation. There are different demands from different sectors. Through this article I wish to talk about the corporate tax rates and how the Budget 2008 might affect them.
Corporate Tax refers to the tax levied on the profits made by companies. Tax rates generally vary depending on whether the profits have been distributed among the shareholders. Further, the gross profits are calculated after deducting the capital expenditure and the amount of interest payments. In 2005, the corporate tax rate was brought down from 35% to 30%. However on adding surcharge and cess it stands at 33.9%.Foreign companies were charged 42.5% including surcharge. This year there is once again a demand to reduce the corporate tax rates. India Inc wants to fix the tax at 30%, while incorporating surcharge and cess. Moreover, the additional distribution tax on dividends is 16.5%. Therefore, there hardly remains a difference between the rates for Indian companies and foreign companies. In this regard, it must also be kept in mind that the Indian companies also have Fringe Benefit Tax (FBT) and Security Transactions Tax (STT).
In fact the demand is not just limited to the Indian Companies. The Organisation of Economic Co-operation and Development has also suggested that India should decrease the corporate tax rates.
The reason why there is such a lot of pressure to reduce the corporate tax rates is because we live in a globalized world and there is a lot of competition to attract foreign capital.