Corporate India Urges Further Tax Reform To Achieve Growth Targets

by Lorys Charalambous, Tax-News.com, Cyprus

10 October 2003

According to a report in the Economic Times, India's corporations are arguing that economic reforms made through the 1990s are not enough on their own to ensure future growth, and are calling on the government to reduce corporation tax further and eliminate tax on dividend income.

Industry argues that if government targets of 100,000 extra jobs over the next decade and economic growth of more than 8% per year are to be achieved, further reforms are needed in the corporate sphere to encourage firms to invest.

One hindrance to growth cited by India's corporations is that firms are required to pay tax on the distribution of dividends, which many complain is a form of double taxation, as companies' profits have already been subjected to corporate income tax.

Furthermore, they argue that growth would be better facilitated by simplification of the corporate restructuring rules in the case of both mergers and demergers. At present, firms need to seek high court approval to effect a demerger, but industry bodies say that shareholder approval at a general meeting should be sufficient to allow demergers and mergers to take place.

The report states that Indian industry would like to see more done in the way of simplifying direct taxation law, in addition to making the tax administration system more transparent and accountable. They also urge the government to formulate a long term fiscal policy plan and introduce extra tax incentives such as a reduction in corporate tax to 30%, and measures that will help replacement of capital stock and restore deductions on interest paid for investment in new assets.

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