Expectations for the Union Budget 2021: The UK-India Business Council proposed on Friday to change the tax structure for domestic and foreign companies in India as part of its recommendations to Finance Minister Nirmala Sitharaman ahead of the budget. “The general practice around the world is to have tax rate parity for all types of companies within the same industry. Examples include all BRIC countries except India and a majority of the OECD countries (UK, Japan, etc.) and major financial centers such as Hong Kong and Singapore, ”said Jayant Krishna, Group CEO of the UK-India Business Council (UKIBC) in a Statement.
The lowering of the corporate tax rate for domestic companies coupled with the elimination of dividend distribution tax (DDT) creates a significant discrepancy between the effective tax rates for foreign companies and domestic companies, according to UKIBC. Currently, the corporate tax rate for foreign companies is 43.68 percent, while domestic companies must pay 25.17 percent as corporate tax, the council said.
“Lowering the corporate tax rate on branches of foreign banks will give them a level playing field with branches of domestic banks and encourage investment by foreign companies looking to invest in India through a branch route,” said Krishna.
UKIBC group chairman Richard Heald, OBE called on the government to further accelerate the pace of economic reform through budget announcements, which would ultimately improve the investment and trade footprint of UK businesses in India. Apart from that, UKIBC proposed that the government increase funding allocations to the defense sector to over 2.5 percent of GDP and automatically raise the limit on foreign direct investment from 74 percent to 100 percent.
It also sought to raise the limit on FDI in the insurance sector from 49 percent to 100 percent and to increase government spending on education and skills development. UKIBC also called for the mutual recognition of degrees between India and key countries including the UK, the abolition of retrospective taxes, the swift divestment of Public Sector Companies (PSUs), the lowering of tariffs on imports of alcoholic spirits and a system of regulation for online Games and sports betting.
The Union budget will be presented to Parliament on February 1st.