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Corporate tax rates to stay for now
March, 06th 2007

Corporates expecting moderation in tax rate in near future may not be pleased with this. Finance minister P Chidambaram has made it clear that any reduction in corporate tax rate was contingent to removal of exemptions.

He asserted that the effective tax rate in India was as low as 19.2%. Pointing that the rate was very low compared to Asean, he said that if all exemptions were removed, the effective tax rate would rise and then some moderation might take place. In any case, he said that the effective rate was more important than the scheduled rate.

Effective tax rate is not only moderate, but very moderate. The effective tax rate in India is 19.2%. Show me one Asian country, one Asean country which has an effective tax rate of less than 19%, asked Mr Chidambaram responding to a suggestion at Ficci post-Budget interaction that a committee should be set up to look into moderation of corporate tax rate.

While I welcome your offer to join a committee to examine what the moderation would be, that the committee should also examine how effective tax rate can rise to the Asean level, he said.

But in what may give some consolation to corporates, Mr Chidambaram said the government had removed 10% surcharge on small corporates and this was an indicator of the future direction. Twelve lakh companies have been given relief. They should welcome 3% tax relief. Thats an indicator of the line we are pursuing in the future. We want taxes to moderate, we have moderated taxes, the moderation has applied this year to small firms and companies, he said.

He said that the corporate sector was doing well and the growth story was here to stay. There is no reason to feel deprived. Theres nothing to hurt the growth story. Investments are taking place, demand is high.

There is no reason to assume 2007-08 will not be a good year for corporate performance, he said. The object of the budget proposals was to ensuring that the high growth embraces rural India, that the gains of growth are distributed more justly and fairly, the finance minister noted. For this to happen, we all have to put not just our heads together, but also bring our hearts together and come up with innovative schemes that will benefit 115 million farming families, Mr Chidambaram said.

Asserting that the government was for everyone, he said, We believe that the growth story must be made all inclusive. The issues identified in the Budget for the farm sector like irrigation and seeds, besides education and health, were important for India. To a query on fringe benefit tax (FBT) on Esops, he said there was no doubt about whether it was a fringe benefit or not. He said he did not subscribe to the view that FBT on Esops affected a companys ability to retain talent as the tax was across the board.

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