The UK-India Business Council (UKIBC) has called on the government, as part of its recommendations to Finance Minister Nirmala Sitharaman, to establish parity between corporate tax rates for domestic and foreign companies before 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 of the BRIC countries except India and most of the OECD countries (UK, Japan, etc.) and major financial centers such as Hong Kong and Singapore, where tax structures are the same for domestic and foreign companies, ”said Jayant Krishna, Group CEO , UKIBC.
The lowering of the corporate income tax rate for domestic companies combined with the abolition of the dividend distribution tax (DDT) creates a significant discrepancy between the effective tax rates applicable to foreign companies and domestic companies of 43.68 percent and 25.17 percent respectively. The Union budget for 2021-22 will be presented to Parliament on February 1st.
Foreign banks typically operate as branches in India for regulatory and commercial reasons. Lowering the corporate tax rate for these branches will provide a level playing field compared to branches of domestic banks and encourage investment by foreign companies interested in investing in India via a bypass, Krishna said.
UKIBC group leader Richard Heald, OBE, has urged the government to further accelerate the pace of economic reform through budget announcements that 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 has also recommended raising the FDI limit for the insurance sector from 49 percent to 100 percent, demanding mutual recognition of degrees between India and key countries including the UK, and eliminating retrospective taxation and speeding up the divestment of public sector companies , Tariff reduction on the import of alcoholic beverages and a regulatory system for online gaming and sports betting.