Bring down corporate tax rates to boost investment & compliance-PHD Chamber

PHD Chamber has suggested that the effective corporate tax rate inclusive of surcharge, cess and other levies should be maintained at a peak level of 30 per cent for the domestic companies from present level of 33.99 per cent and gradually lowered to 25 per cent.

In its Pre-budget memorandum submitted to the Government, the Chamber pointed out that the aggregate tax burden on companies is significantly higher than other developing and developed countries, particularly in the Asia Pacific region, which are the major competitors of India in terms of attracting investment, supplying machinery and in exports. “Lower incidence of corporate tax is a barometer that captures the competitiveness of an economy and enables business entities to plough back resources internally accrued for expansion and diversification purposes,” says Mr. Sanjay Bhatia, President, PHD Chamber.

The Chamber also pitched for a reduction in the tax rate in view of the Government’s effort to make the tax structure linear by withdrawing the tax exemptions and incentives. Maintaining the tax rate at the present level and doing away with the exemptions and incentives would add to the tax burden of the companies. “Rationalizing the tax rates and total tax burden would encourage higher voluntary compliance, resulting in higher revenues,” Mr Bhatia remarked.

Pitching for total withdrawal of the Dividend Distribution Tax or substantial reduction of the rates to boost investment, PHD Chamber pointed out that the tax burden cast on the companies by way of dividend distribution tax at 17 per cent inclusive of 10 per cent surcharge, two percent education cess and one percent additional cess is very high. “It is an accepted principle in tax rules that double taxation should be avoided and continuation of Dividend Distribution Tax is a negation of that well accepted principle,” says Mr Bhatia.

The Chamber also presented a ‘wish list’ on Fringe Benefit Tax (FBT) to reduce the burden cast even on legitimate business expenses incurred wholly and exclusively for business purposes such as sales promotion and publicity, samples, telephones, travel costs, hotel and board and lodging etc. The Chamber’s demand is that FBT should be withdrawn or made simpler without insisting on segregating expenditure under various heads. The levy could be linked to the taxable salary paid by the employer. Also, some of the expenses like sales promotion and publicity, conveyance, tour and travel, etc should be taken out of the purview of the tax. Besides, it feels that there is need to bring greater clarity in levy of FBT on ESOPs in case employer company does not issue shares but the foreign parent company of the employer grants options.