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Tax domestic, foreign firms equally, say experts

BS Economy Bureau

Tax experts are of the view that corporate tax rates for foreign and domestic companies should be brought to the same level.

Speaking to Business Standard, Arvind Virmani, adviser, Planning Commission, said there was no rationale behind having different tax rates for foreign and domestic companies.

At present, the corporate tax rate is 35 per cent for domestic companies and the corporate tax rate is 48 per cent for foreign companies.

The Planning Commission adviser said the difference did not contribute much to the government revenue as the rates were applicable only on branches of foreign companies operating in the country, whose number was very small.

Since an overwhelming number of foreign companies were operating through their subsidiaries in the country, he said, the higher tax rate was not applicable on them.

Virmani said the government's justification for different rates was that the branches did not pay any dividend tax here, and the higher rate was meant to neutralise this difference.

Agreeing with Virmani, S Mukherjee of PricewaterhouseCoopers said the government would not lose much by rationalising the tax rates.

He said while the government actually treated most foreign companies on a par with the domestic companies, the difference in the corporate tax rates did nothing except for getting the Centre unnecessary brickbats.

The government is expected to rationalise corporate tax rates in the coming budget to 30 per cent.

The experts say it will be better to harmonise the system for all companies instead of having a graded regime, which will keep the existing differences intact.

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