UKIBC seeks reduction in corporate tax for foreign company branches in India

Our Bureau New Delhi | Updated on January 15, 2021

In pre-Budget submission to FM, makes a case for paring of import duties on alcohol, raising FDI limit in defence, insurance, exempting cheap medicines from controls

The UK-India Business Council (UKIBC) has sought reduction in India’s corporate tax rates for branches of foreign companies to bring them “at par’’ with domestic companies.

In its recommendations to Finance Minister Nirmala Sitharaman for Budget 2021-22, the UKIBC also made a case for reduction in import duties on alcohol and spirits in a phased manner, remove retrospective taxation and raising foreign direct investment limit in defence sector and insurance.

In the area of taxation, the UKIBC pointed out that the reduction in the corporate tax rate for domestic companies coupled with the abolition of Dividend Distribution Tax (DDT) created a disparity between the effective tax rates applicable to foreign companies (43.68 per cent) and domestic companies (25.17 per cent).

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“Globally, the general practice is to have a tax rate parity across all kinds of companies within the same industry. Examples are all BRIC countries except India and a majority of OECD countries as well as important financial centres like Hong Kong & Singapore where the tax structures for domestic and overseas companies are identical,” said Jayant Krishna, Group CEO, UKIBC.

While abolishing DDT is a positive step, it is recommended that the corporate tax rates for branches of foreign companies be reduced to bring them at par with domestic companies, he added.

Allocation for defence sector

The council also said the Budget allocation for the defence sector should be raised to more than 2.5 per cent of the GDP (Gross Domestic Product) and FDI should be increased from 74 per cent to 100 per cent through the automatic route and also raise cap for FDI in insurance companies to 100 per cent (from 49 per cent).

UKIBC proposed that spending on education and skill development should be increased to 4.5 per cent from 3 per cent of GDP to enable effective implementation of New Education Policy.

It also favoured enhanced government spending on public healthcare to 3 per cent of GDP (from 1.3 per cent) and revise the National List of Essential Medicines to exempt inexpensively-priced medicines from unnecessary controls, the release stated.

Pushing for a reduction in import duties on alcohol, UKIBC proposed reduction of basic customs duty on Bottled-In-Origin and Bulk Spirit from 130 per cent to 75 per cent and eventually to 30 per cent.

The council suggested that India should conclude trade agreements with the UK and other major economies to boost its trade-to-GDP ratio.

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Published on January 15, 2021
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