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India Launches Consultation On Corporate Tax Reforms

by Mary Swire,, Hong Kong

24 November 2015

India's Ministry of Finance has launched a new consultation on proposals to phase out tax exemptions and lower the corporate income tax rate by five percent.

The plans were first announced by Finance Minister Arun Jaitley in Budget 2015/16 with a view to simplifying the tax system and making the Indian tax regime more internationally competitive.

Under the plans, profit-linked, investment-linked, and area-based deductions will be phased out for both corporate and non-corporate taxpayers. They will be allowed to expire and will not be extended, the Government said, confirming that temporary tax breaks will not be repealed before their scheduled expiry date.

Permanent tax breaks that are proposed to be repealed would be revoked from March 31, 2017.

Finally, there will be no weighted deduction with effect from April 1, 2017. Currently, section 35AD of the Act provides for 100 percent deduction of capital expenditure incurred by certain specified businesses, whereas in other businesses, weighted deduction of 150 percent of capital expenditure is allowed.

Jaitley had said in his 2015/16 Budget speech: "The basic rate of corporate tax in India, at 30 percent, is higher than the rates prevalent in the other major Asian economies, making our domestic industry uncompetitive. Moreover, the effective collection of corporate tax is about 23 percent. We lose out on both counts, i.e. we are considered as having a high corporate tax regime but we do not get that tax due to excessive exemptions...I, therefore, propose to reduce the rate of corporate tax from 30 percent to 25 percent over the next four years."

Jaitley added that the "process of reduction has to be necessarily accompanied by rationalization and removal of various kinds of tax exemptions and incentives for corporate taxpayers, which incidentally account for a large number of tax disputes."

The consultation closes on December 5, 2015.

TAGS: compliance | Finance | tax | investment | business | tax compliance | India | tax incentives | law | budget | corporation tax | enforcement | ministry of finance | tax authority | legislation | tax planning | tax rates | tax reform | regulation | legislation amendments | trade | Tax

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