India ranks 45 on tax score

By agencies   |   Monday, 27 June 2005, 07:00 Hrs
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MUMBAI: At 45 China is way ahead of India in attracting FDI, but ironically, quite the opposite when it comes to tax competitiveness. High payroll taxes have pushed up the overall tax burden for business entities in the otherwise booming Chinese economy.

In terms of tax misery, China is the worst in Asia and takes the second spot after France. India ranks 45th, which is reckoned to be comfortable — in the International Tax Misery Index created by Ernst and Young (E&Y) for Forbes Global. This is because India has lower payroll taxes compared to other countries.

The U.S. and Singapore have been ranked 46th and 47th respectively. While tax costs alone do not determine the location or expansion decisions of business entities, it could be the tiebreaker while making the final choice between two countries.

“A continuous phase of reforms, including lowering of the peak rates, has contributed to this favorable ranking for India on the tax misery index.

The impact of the fringe benefit tax has, however, not been considered while computing the index, as this could vary from company to company and it is still too early to take an informed view,” said Amitabh Singh, partner, E&Y.

The International Tax Misery Index is the sum of different taxes — including corporate tax, personal tax, wealth tax, employer/employee security tax and value-added tax or sales tax at the highest marginal rate in every country. The study covers over 50 countries and misery ratings are in descending order.

This means the lower a country stands on the ranking list, the lower are the overall taxes. The misery index score for China, which is ranked second, is 160.

China’s corporate tax liability is 34.4% — just marginally higher than that of India. But personal tax and other tax liabilities are much higher than in India.

In most countries, local revenues are raised through property taxes that do not impact the misery index. The same is not true for China. Hence, provincial taxes levied in China have been included while computing the index.

“Unfunded pension liabilities in China’s system of pooled and individual funds are viewed as a danger to its tax competitiveness.

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