labels: economy - general, kpmg
India''s high corporate tax rates may hinder FDI inflow, says KPMG news
26 July 2007

Mumbai: India''s high rate of corporate taxes are a drag on the flow of foreign direct investments (FDI) into the country as rival economies such as China, Spain, Singapore and Germany are likely to reduce tax rates by next year, consultancy firm KPMG International said in a report.

Corporate taxes in India varies from 33.6 per cent for domestic companies to over 42 per cent for foreign firms while it is 17.5 per cent in Hong Kong, 20 per cent in Singapore and 27 per cent in Malaysia, the KPMG study pointed out.

In a survey covering 92 countries, the KPMG said the average rate of corporate tax in the EU was 24.2 per cent, compared with 27.8 per cent in the OECD countries, 28 per cent in Latin America and 30.1 per cent in Asia-Pacific.

"With Hong Kong`s corporate tax at 17.5 per cent, Singapore`s 20 per cent and Malaysia`s 27 per cent, these countries, which are also in the process of developing their economies and with their lower corporate tax rates, can provide stiff competition to India for attracting FDI," KPMG International said in its global corporate tax rate survey.

The study, however, said significant reductions in corporate tax rates are in pipeline in the UK, Germany, Spain, Singapore and India.

"We believe that India should hasten the implementation of Kelker Committee recommendation of reduction of corporate rates to 30 per cent." KPMG India`s national head (tax and regulatory services) Sudhir Kapadia said,

Finance minister P Chidambaram in his budget 2007-08 had said that effective corporate tax was 19.2 per cent. He has also said that FDI is expected to go up to $20 billion this fiscal.

While some countries have made significant cuts - such as Turkey`s reduction from 30 per cent to 20 per cent and Bulgaria`s reduction by 5 per cent to 10 per cent - globally the reduction in corporate tax rates from 2006 to 2007 has been very slight, from 27.2 per cent to 26.8 per cent, much less than the year-on-year reductions of the 1980s and 1990s, KPMG said.

India can, however, take solace from the fact that indirect tax rates like value added tax (VAT) at 12.5 per cent is much lower than in China (17 per cent) and its neighbours- Bangladesh (15 per cent ) and Pakistan (15 per cent), the report said.

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India''s high corporate tax rates may hinder FDI inflow, says KPMG