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Foreign firms may face lower tax rate
February, 16th 2007

The government is toying with the idea of lowering the tax rate for foreign companies in the forthcoming Budget to bring them on a par with India Inc, in a bid to project the country as an attractive investment destination.

Since the government is looking to bring down tax rates for Indian companies, there is a case to do so for foreign companies as well, a source told ET.

Foreign companies having branch or representative offices in India face a tax rate of 40% besides 2.5% surcharge and 2% education cess, which makes the effective rate 41.8%.

For Indian companies, the effective tax rate works out to 33.66%, with a corporate tax rate of 30%, 10% surcharge and 2% cess. The subsidiary of a foreign company attracts rates applicable to Indian companies.

If the dividend distribution tax or corporate tax for domestic companies is reduced, a similar reduction should be made in the tax rate for foreign companies to maintain parity between the two, KPMG director Vikas Vasal said.

With infrastructure weighing heavy on its agenda, the government wants to woo foreign expertise to the sector. A low tax regime could bring in not just foreign investments but also technical expertise.

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