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Assocham seeks tax sop for cos holding 40% in overseas firms
November, 11th 2006

India Incs global acquisition drive has now started reflecting in the pre-Budget demands of industry bodies. Assocham, which has submitted its set of pre-budget memorandum for the upcoming Budget, has called for a specific tax concession in cases where the shareholding of the Indian company is more than 40% in the overseas company.

The demand is with respect to income tax treatment of dividend which may accrue to the Indian company from the acquired international entity. The idea being that it would not only increase the remittance of foreign exchange earnings but will also encourage companies to choose India as their international headquarters.

While taking note of the fact that the corporate tax rate was reduced last year from 35% to 30%, Assocham has suggested that the surcharge which was increased from 2.5% to 10% be reduced back to the original level. It has also suggested that the fringe benefit tax be abolished and to make it a revenue neutral measure the corporate tax rate may be increased back to 35%.

Some of the other measures with respect to direct taxes recommended by Assocham include reduction of MAT rate to 7.5% from 10%; extension of the scope of the zero long term capital gains tax to cases like buybacks, open offer etc; expansion in the definition of relative for the purpose of gift tax, etc.

In its pre-budget memorandum Assocham has also called for phasing out CST (Central Sales Tax) two years from now arguing that it is inconsistent with VAT (Value Added Tax) regime. The chamber has suggested lowering of CST further to 2% and has recommended uniformity in VAT across all the states.

With a view to prevent cascading effects of multiple taxes at different stages of production the industry body has also recommended replacement of current central and state taxes by a single GST (Goods and Services Tax) regime.

As part of its recommendations for indirect taxes, Assocham has called for reduction in excise duty rate on various manufactured goods from the current level of 16% to 14%. It has also suggested reduction in excise duty on telecom, cars, and tyre & tube products and increase in excise duty abatement on pharmaceutical products to 45%.

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