The Confederation of Indian Industry has called for slashing corporate tax to 30 per cent from the prevailing 35 per cent, in line with the recommendation of the Kelkar Taskforce. It has also suggested that the surcharge of 2.5 per cent be removed.
CII has advocated a reduction in the rate to align it with the maximum personal tax rate of 30 per cent. The Kelkar Taskforce had pointed out that a corporate entity should be viewed as a conduit and there was a need for integrating the corporate and personal income tax.
The cut in rates is important as India has to compete with countries like China where corporate tax ranges from 0 to 20 per cent. An effective corporate tax rate of 35.875 per cent puts the Indian corporates at a disadvantage in re-investing into its business and improving competitiveness, CII said in it its pre-Budget memorandum to the government.
The surge in direct tax collections indicates that aligning it with the personal tax rate would enhance the level of compliance and lead to a rise in corporate tax collection.
CII has strongly criticised taxation of dividends by terming it double taxation. It is pitching for abolition of the tax.
Dividend distribution tax has been re-introduced by the Finance Act, 2003, where a company/mutual fund/UTI declaring dividend has to pay tax at 12.5 per cent on the profits distributed to the shareholder.
The government hoped to reduce the administrative inconvenience by transferring the incidence on dividend paying companies, rather than recipients.