NEW YORK: The recent U.S. tax cuts and reforms are exerting a lot of pressure globally, with most countries now looking at ways to enhance their tax competitiveness in order to attract investments and boost growth, according to Mukesh Aghi, president, US-India Strategic Partnership Forum (USISPF).
His statement assumes significance as there are expectations that the government may also usher in tax reforms in the Union Budget in line with global trends.
Indian subsidiaries of many American companies and even Indian export firms for whom the U.S. is the major market, are said to be considering shifting operations to the U.S. to take advantage of the tax cuts and other benefits of being there, according to Indian industry officials.
“Every country around the world is now looking at their tax rates and how competitive they are vis-a-vis the U.S.,” Mr. Aghi told The Hindu. “They are looking at ways to attract investments and raise revenue. So the US tax reforms are putting pressure globally.” Referring to the reduction of Corporate Income Tax (CIT) in the U.S. from 35% to 21%, he said, “This is happening after 30 years. So [as a result], the U.S. stock market is booming… Suddenly, with just 21% CIT, companies [in the U.S.] will have more money. They are already giving bonuses to employees. You also saw Walmart announcing an increase in minimum wages for its employees.”
Companies such as Apple and Exxon Mobil are reported to have indicated plans to invest billions of dollars in the U.S. following the tax cuts.
Citing the difference in CIT between the U.S. and India (where the rate is about 30%) as well as the exchange rate risk, Mr. Aghi said there were concerns being expressed whether the CIT cut in the U.S. would possibly lead to a slowdown in investment into India by U.S.-based firms.
Pointing out that India’s budget last year had an announcement on reduction of CIT to 25% in case of small companies with annual turnover up to ₹50 crore, Ajay Sahai, Director General and CEO, Federation of Indian Export Organisations (FIEO), said the Centre should similarly reduce CIT to 25% for large companies.
“The reduction in CIT in the U.S. has forced Indian subsidiaries of American firms to look at the option of closing their India operations and moving to U.S. to avail the tax advantage,” Mr Sahai said, adding that in pharma and other sectors, many Indian exporters — for whom the major market is the U.S. — are mulling shifting to the U.S. to get the benefit of import tariff, reduction in CIT and 100% deduction on purchase of equipment.
Indian leather exporters are also weighing the option of adding production in Bangladesh to take advantage of the 15% cash support announced by that country, besides the import tariff gains of exporting from a least developed country.
