INDIA'S TAX STRUCTURE

An International comparison & FICCI's Suggestions

FICCI has carried out an intensive study of the Indian Tax Structure and how it compares with the practices worldwide. This exercise on the eve of the Budget puts into perspective the high incidence of direct and indirect taxation in India vis-à-vis other countries, which in a globalised world is blunting the competitive edge of the Indian Industry.

The Study includes FICCI's suggestions to lighten the burden of duties and give a boost to the Indian industry and trade so that India Inc. can capitalize on the gains made on the economic front in 2005-6.

The following are the highlights of the Study: (EMBARGO: FOR PUBLICATION ON MONDAY, FEBRUARY 13, 2006)

1. Overall burden of Direct taxes on Companies (See Page 1 of the attached Study)
Corporate India's direct tax burden today stands at over 40%. Corporate Tax Rates in other countries varies between 17.5% and 28% (Page 1 of the Survey)

2. Maximum tax slab for individual assesses (See Page 1)
In India 30% tax rate applies over income Rs. 2.5 lakh. In China, 30% tax rate applies only to income above Rs.40 lakhs.

3. Standard Deduction (See Page 1)
While in India, the concept of Standard Deduction has been discontinued for salaried employees, in Malaysia, Indonesia, Germany, UK, France, Japan, Thailand etc. allowance in the form of standard deduction is available.

4. Fringe Benefit Tax (See Page1)
Fringe Benefit Tax aims at taxing amounts, which are not income but are in the nature of expenditure. Genuine business expenditure such as Sales promotion, including publicity, Conference (including conveyance, tour and travel and hotel, boarding and lodging expenses) should be allowed deduction. In other countries, where the Fringe Benefit tax is there, the individual and corporates are required to attach their tax statement along with their normal statement and they get the due tax credit of the amount paid as FBT.

5. Depreciation (See Page 2)
In India depreciation rate in case of Plant and Machinery is 15%. In the UK, there is a system of "free depreciation". Spain, which also had free depreciation system earlier, provides free depreciation now for certain specified assets. Finland had followed this system until the late 70's.

6. Dividend Distribution Tax (See Page 2)
Presently in India a company is required to pay Dividend Distribution Tax @ 14.025% on its distributed profits. Liberal norms prevail overseas.

7. R&D (See Page 3)
In India weighted deduction benefit of 150% is allowed in few sectors. In most of the developed countries including United States, Australia, France, Canada etc., tax incentives for promoting research and development are provided more or less on a permanent basis. In countries like Canada, Germany, UK, the Government provides up to 35% grant on research.

8. Tax Incentives (See Page4)
In India, tax incentives are provided for Infrastructure Sector, Research and Development and other key sectors of the economy. Liberal incentives are provided in many countries for a range of activities.

9. Overall Incidence of Indirect Taxes (See Page 6)
According to FICCI study, average total incidence on selling price in case of consumer goods is 44.11%, capital goods 43.26%, basic goods 30.28% and intermediate goods 30.06%.

10. Value Added Tax (See Page 7)
VAT should be introduced in all states and union territories. Time is now ripe to do away with other levies in any form be it octroi, entry tax, mandi tax etc. CST should be abolished at the earliest. Most of the countries have already introduced Value Added Tax in their country. Even a large number of countries have Goods and Services Tax (GST) in place.

Click here (Note: Relevant Tip Sheets, Pages 1-7, attached)