India Mulls 5% Cut In Corporate Tax

by Lorys Charalambous, Tax-News.com, Cyprus

07 December 2004

The Indian government is considering a plan that would reduce the country’s 35% corporate tax rate to 30% in the 2005/2006 budget, the Business Standard has revealed.

Government officials told the Indian daily that the proposal is being considered under a wider plan designed to integrate the personal and corporation tax systems, in line with a recommendation by the Kelkar committee on direct taxation reform.

The government’s rationale is that by reducing income tax rates in tandem with a lowering of tax exemption thresholds, more people will be brought into the tax net at a lower rate, which is likely to improve levels of compliance.

"Although income tax rates in India are comparable with those in other countries, there is a view that income tax rates can be further reduced. Past experiences have shown that a reduction in tax rates has resulted in better tax collection," one official stated.

According to the Business Standard, a government budgetary advisory panel is said to favour a 50% reduction in the tax exemption level to R50,000 (US$1,500).

"There is a view that the present exemption limit of R100,000 on income tax is on the higher side," the official added.

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