“If the US under Joe Biden does indeed go ahead with higher tax rates for corporates from 21% to 28%, US multinationals may find investment in India more attractive in view of the recently reduced corporate tax rate,” said Rajendra Nayak, partner and national leader of international corporate tax advisory at EY India.
India had reduced the corporate tax rate to 22% for companies that gave up all exemptions and incentives in September last year. The effective rate without exemptions would be about 25.17%. However, a 15% rate has been offered to new companies including manufacturing firms. The rates have been set at a far more attractive levels compared to previous rate of 30%.
Tax experts believe that India’s position could help it gain not only fresh investments through foreign direct investment (FDI) route but also global multinational situated in the US preferring to keep their profits its offshore branches such as India.
US president-elect Joe Biden has favoured increasing tax rates for corporates to 27-28% from 21% at present, while Donald Trump had proposed to reduce the rates even further.
However, Biden has also proposed to increase Global Intangible Low Tax Income or GILTI rates to as high as 40% from present levels of 20-21%, which can impact global IT and ITeS businesses operating in India.
“Higher GILTI rates could lead to increasing tax costs for offshoring work, which in turn may lead to decreasing business for the IT and ITes industry in India which has served as captive back offices for many large US corporations,” said Rohinton Sidhwa, tax partner at Deloitte India.
However, the challenge for Biden will remain in taking his proposals from the campaign manifesto to actual implementation, most experts noted as Republicans still hold majority votes in the US Senate.