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Individual Income Tax Lower in India than China

 


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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.

The number of domestic billion dollar companies in India increased by 16 percent from 104 to 124 over the last two years, according to an Economic Times Intelligence Group study.

The study cited 20 Indian corporations that achieved billion dollar sales or more, reflecting the countries resilience to the global downturn. It looked at projected net sales for the 12 months ending March 31 using data available for the first nine months of the fiscal year.

While companies such as Apollo Tyres and Motherson Sumi have grown through acquisition, the majority, including names such as Bharat Electronics, Cipla, IVRL, Lanco Infratech, Tata Tea and Tech Mahindra have done so on the back of strong demand for their products. Revenue reports are used by many investors as benchmarks to determine whether a company is worth investing in or not.

The fact that so many local companies have flourished during a period of retraction for many global businesses is also likely to spur on India to play and act as a catalyst for global market growth.

Companies focused on domestic consumption performed well in the report, while those in real estate and financial services showed some slowdown. Unlike China, India’s new billion dollar companies are almost all privately owned, while most Chinese billion dollar entities are owned by the state.

This article was written by Chris Devonshire-Ellis. Chris is the founder of foreign direct investment firm, Dezan Shira & Associates, which maintains business advisors and accountants in Delhi , Beijing and other cities across Asia.

Chris also writes for the China business news website, China-Briefing.com.

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