OECD calculations assume that companies distribute their entire annual profits as equity dividends to shareholders.
The combined corporate tax
rate in India is more than one-and-a-half times that of Japan (29.7 per cent), and over double that of Russia (20 per cent) and the UK (19 per cent). The OECD rates look at the standard rate which is not targeted at a particular industry or income type. The top marginal rate is used if countries have a progressive corporate tax
“Corporate taxes in India are on the higher side and the government should try to bring it down to the level now prevalent in competing jurisdictions,” Sudhir Kapadia, national tax leader, EY India, said.
Besides making firms less competitive in the global arena, high taxes also impact corporate investments.
Vipul Jhaveri, managing partner – tax, Deloitte, said: “Reducing corporate tax
rates will incentivise companies to start investing in capital expenditure.”
Dhananjay Sinha, head of strategy and chief economist, IDFC Securities, said: “When tax rates are rising, as they have been in India in recent years, taxes eat away a greater part of incremental rise in profits, reducing financial incentive for companies to take risks with new projects.” All this has brought corporate taxes in focus ahead of the Union Budget next week. “It’s time the National Democratic Alliance government fulfils its earlier promise of lowering corporate tax rates in its second term,” said Kapadia. This will leave more money in the hands of companies to fund growth and capex. A tax cut will also boost corporate confidence that could trigger the new investment cycle by India Inc, he added. A cut in tax rates may be difficult at a time when the government has been scrambling for resources. Corporate tax is an important source of revenue in developing countries. It accounts for 15.3 per cent of revenues in Africa, and for the more developed OECD countries, it is only 9 per cent.
“India's fiscal position is already challenged and growth has slowed, despite fiscal impulses over the past six months. In the midst of slowing revenue collection, the quality of government spending has also deteriorated (consumption preferred over capex),” noted Tanvee Gupta Jain and Gautam Chhaochharia of UBS Securities.