Op/Ed Commentary: Chris Devonshire-Ellis
Mar. 23 – India’s recent budget for 2010 has paved the way for a reduction in individual income tax levels and is poised to make the country highly competitive compared to others in the region.
As India prepares for reform of the direct tax code, which is expected to pass into law in April next year, individual income tax burdens will be among the taxes lowered to enhance competitiveness. For the first time, Indian IIT will be far lower than that in China. The arrangements, which are partially a result of India shifting from an income-based tax structure to consumption-based tax structure, also come at a time when India is looking to ramp up its manufacturing industry and provide investment incentives for the sector.
India’s Finance Minister has proposed a series of tax cuts “in slabs,” and if passed by the Indian Parliament will look like this:
It should also be noted that welfare and other mandatory social employment costs amount to about 50 to 60 percent of salary in China, and 10.3 percent in India.
India’s re-positioning of its individual income tax base is expected to benefit lower and middle income class groups and increase disposable income throughout India, driving economic growth forward.
Movement of labor intensive industries from China to India is expected to grow as a combination of cheaper labor costs and taxes that impact the bottom line for global manufacturing businesses. India has made no secret of its intent to compete with China for global manufacturing foreign direct investment and these attractive individual income tax rates are expected to be complimented by improved foreign direct investment policies in the manufacturing sector to be announced at the end of the month.
Chris Devonshire-Ellis is the managing partner for Dezan Shira & Associates in India and can be reached at india@dezshira.com for advice on matters of Indian investment and tax.
Chris also contributes to Asia Briefing’s other titles, India Briefing, China Briefing and Vietnam Briefing.
More tax and incorporation comparisons between China and India can be downloaded free from our China and India Business Vehicles and Taxes Compared.
