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Indian Firms Call For Clarity On Tax Policy

by Mary Swire,, Hong kong

08 January 2016

A coalition of Indian businesses has called on the Government to be more specific about its plans to cut the rate of corporate tax and phase out corporate tax exemptions.

In a pre-budget submission to the Government, representatives of industry, including the Federation of Indian Chambers of Commerce and Industry, the Confederation of Indian Industry, and the Associated Chambers of Commerce of India said that next month's Union Budget provides Finance Minister Arun Jaitley with an opportunity to provide taxpayers with a more detailed timetable for tax reform.

CII President Sumit Mazumder said in a statement following a meeting with Jaitley that businesses would like to see corporate tax reforms undertaken in a more coordinated way, with exemptions phased out alongside the proposed cuts in corporate tax. "The withdrawal of incentives should be done in a calibrated manner, in line with the reduction in tax rate and keeping in mind the competitiveness of the sector," he said

Proposals to simplify the tax code and reduce corporate tax by five percent to 25 percent in stages starting in 2016/17 were announced by Jaitley in last year's Budget. The Ministry of Finance then launched a consultation on the proposals in November 2015.

Under the plans to reduce tax exemptions, 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 They will be allowed to expire but temporary tax breaks will not be repealed before their scheduled expiry date. Permanent tax breaks that are proposed to be repealed would be revoked from March 31, 2017. However, the exact timing of the corporate tax cut remains somewhat unclear.

Additionally, the industry associations urged the Government to phase out the Minimum Alternate Tax (MAT) as part of a future tax reform plan.

Currently, corporations whose tax payable is less than 18.5 percent of book profits can also face MAT at that rate. However, the effective rate of the tax can be as much as 21.3 percent when additional surcharges are taken into consideration. Foreign institutional investors and foreign portfolio investors are, however, exempt from MAT.

TAGS: Finance | tax | investment | business | India | budget | corporation tax | tax breaks | tax reform | Tax

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