UKIBC for tax parity between domestic and foreign companies in Budget

The reduction in the corporate tax rate for domestic firms, creates significant disparity between the effective tax rates applicable to foreign companies

The UK-India Business Council (UKIBC) has urged finance minister Nirmala Sitharaman to bring parity in the corporate tax rates applicable to foreign and domestic companies and remove retrospective amendment to the Income Tax Act in the upcoming Budget.

The reduction in the corporate tax rate for domestic firms, coupled with the abolition of dividend distribution tax (DDT), creates significant disparity between the effective tax rates applicable to foreign companies at 43.68 per cent and domestic companies at 25.17 per cent.

In its recommendations for the upcoming Budget submitted to the finance minister, UKIBC said," “Globally, the general practice is to have a tax rate parity across all kinds of companies within the same industry."

It cited the examples of all BRIC countries (except India) and a majority of OECD countries (such as UK and Japan) as well as important financial centres like Hong Kong & Singapore where the tax structures for domestic and overseas companies are identical. 

Jayant Krishna, Group CEO, UKIBC, said, “While abolishing DDT is a positive step, it is recommended that the corporate tax rates for branches of foreign companies be reduced to bring them at par with domestic companies." 

Krishna said foreign banks generally operate in India as a branch due to regulatory and commercial reasons and a reduction in the corporate tax rate for such branches will provide a level playing field as compared to branches of domestic banks and encourage investment by foreign entities that are keen to invest in India through a branch route.

UKIBC’s group chair Richard Heald, OBE urged the Government of India to accelerate the pace of economic reforms further through the Budget announcements that would eventually lead to an enhanced investment and trade footprint of the UK’s businesses in India.

Among other major recommendations in addition to the reforms in acquisition and labour laws, UKIBC suggested raising Foreign Direct Investment (FDI) limit in the defence sector to 100 per cent from 74 per cent through the automatic route, increasing insurance sector FDI limit to 100 per cent from 49 per cent, an increase in government spend on education, skill development and healthcare, removal of retrospective taxation, fast-tracking PSU disinvestments, customs duty reduction for import of alcoholic spirits, and a regulatory regime for online gaming and sports betting.