The Hindu Business Line : Expansion of tax base key to cut in corporate taxes: Shome

The corporate tax rate in India is now at 35 per cent as compared with 19-30 per cent in the UK, 30 per cent in Australia and 25 per cent in Brazil.

New Delhi , Nov. 5

AGREEING that there was room for reduction of tax rates including corporate tax rates, Dr Parthasarathi Shome, Advisor to the Finance Minister, Mr P. Chidambaram, said "This could be only possible with expansion of the tax base and rationalisation of several exemptions."

The corporate tax rate in India is now at 35 per cent as compared with 19-30 per cent in the UK, 30 per cent in Australia and 25 per cent in Brazil. In addition to the tax, corporates have to pay a 2.5 per cent surcharge and another 2 per cent on education cess. This pushes up the aggregate tax rate to about 36.6 per cent.

He admitted the tax rate in India has remained the same for the last 6-7 years while countries such as Brazil have almost halved it to 25 per cent. Dr Shome, however, stressed that corporate tax could be brought down only if the base is expanded to accommodate the lower rates so that Government's revenue deficit does not widen after the tax cut.

Addressing a conference on `Emerging tax policy: Challenges and perspectives' organised by FICCI here on Friday, Dr Shome said lower corporate tax would make the domestic private sector more competitive and set a level playing field in the wake of global competition. He underlined the need to rationalise alignment of tax exemptions that has affected the efficiency of allocation of resources in the country.

He asked the captains of Indian industry for a decrease in tax rates along with a plan on how a level playing field can be developed in the country. Dr Shome urged the public and private sector to work together to create a level playing field in the country. He further added, "We are faced with a problem of insufficient alignment of incentives with taxes, which has largely effected the efficiency allocation of resources in the country. There is a need to remove most of the present incentives on a step-by-step basis except may be for some of them."

The correct type of incentives has had a positive impact on the supply side that has further expanded the tax base. "I challenge you to come up with a list of incentives which are favourable to the macro economy rather than from the corner of micro economic intentions," he said.

On the much-discussed issue of Value-Added Tax (VAT) regime, which is likely to be introduced from April 1, 2005, he said, "We have been in the process of introducing VAT slowly over the last 15 years in order to cushion the impact of system on those impacted by VAT. The changes have also been made with the idea of them remaining in place for a long time and require revisiting."