Issues related to taxation and the economy are always interesting and engaging topics. When the budget is presented to the Parliament, everyone’s attention is focused on it. Even ordinary people discuss and comment on the budget, everyone becomes an expert for that month, but nothing wrong on that, there is a prevailing question among the public: Why does the government not tax corporations more? The reality is that India imposes significant corporate taxes on foreign companies, making it one of the countries with high taxation rates for corporations.
Tax Slabs for Domestic Company
| Condition | Income Tax Rate (excluding surcharge and cess) |
| Total Turnover or Gross Receipts during the previous year 2020-21 does not exceed ₹ 400 crores |
25% |
| If opted for Section 115BA of income tax act | 25% |
| If opted for Section 115BAA of income tax act | 22% |
| If opted for Section 115BAB of income tax act | 15% |
| Any other Domestic Company | 30% |
SURCHARGE
- 7% – Taxable income above ₹ 1 crore– Up to ₹ 10 crore
- 12% – Taxable income above ₹ 10 crore
- 10% – If Company opting for taxability u/s 115BAA or Section 115BAB
And the Health and educational cess @4% is also included.
Tax Slabs for Foreign Company
| S. No |
CONDITIONS |
RATES |
| 1. | Royalty from Government or an Indian concern in pursuance of an agreement made with the Indian concern after 31st March 1961, but before 1st April 1976, or fees for rendering technical services in pursuance of an agreement made after 29th February 1964 but before 1st April 1976 and where such agreement has, in either case, been approved by the Central Government |
50% |
| 2. | Any other income | 40%
|
SURCHARGES FOR FOREIGN COMPANY
- 2% – Taxable income above ₹ 1 crore – Up to ₹ 10 crore
- 5% – Taxable above ₹10 crore
Inclusive of Health and educational cess @4%
LAFFER CURVE AND TAX
The Laffer curve was developed by economist Laffer: The Laffer curve illustrates a theoretical relationship between rates of taxation and the resulting level of government revenue. The curve is typically represented as a graph that starts at 0% tax with zero revenue, rises to a maximum rate of revenue at an intermediate rate of taxation, and then falls again to zero revenue at a 100% tax rate. Let us understand with graph
At a 0% tax rate, the model states that no tax revenue is raised. At the extreme of a 100% tax rate, the government collects zero revenue because taxpayers change their behaviour in response to the tax rate: either they will not prefer to invest, or they find a way to avoid paying taxes (Tax evasion) . Thus, the “economic effect” of a 100% tax rate is to decrease the tax base to zero. If this is the case, then somewhere between 0% and 100% lies a tax rate that will maximize revenue. The equilibrium point is where you can tax the corporates at this possibility point, if the rates increase more than the possibility point then the corporation will not prefer to invest in the market.
INDIA’S PRACTICAL SCENARIO
After economic reforms in early 1990s, the private sectoral investment began to pick up, however, it began to drop post-liberalisation reforms ( ie. Economic reforms) The growth in private sectoral investment lasted until the global financial crises(subprime mortgage crises) of 2007-08.It rose from around 10% of GDP in 1980s to 27% in 2007-08.From 2011-12 onwards, however it began to drop a lower of 19.6% of GDP, at present still the same index. The economist offers two explanations for the current level of private investment in India.
a. Low private consumption expenditure, i.e. no sufficient demand for their output.
b. Unfavourable tax policy by the union government.
India imposes high taxes on foreign corporations and moderate taxes on domestic corporations. According to the Tax Foundation’s report on corporate tax published on December 12, 2023, many countries have adjusted their statutory corporate income tax rates. The rise in investment from the mid-1990s to 2012 is correlated with economic reforms. However, in the last two decades, there have been no significant reforms. Reducing corporate taxes for both foreign and domestic corporations could encourage increased investment in the Indian market. Therefore “No Budget can amend the laws of economics any more than it can, the laws of dynamics.”
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(AUTHOR – Adv Santhosh. A, is an Advocate Practicing before District and sessions Courts and Tribunals and can be contacted at [email protected])
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