New tax plans raise corporate hackles

Serious concerns have been raised over proposals for a new tax code in India. The plans put forward by the Ministry of Finance will drastically alter the current tax regime, which has been largely unchanged for 50 years. Among the changes, which are intended to simplify the tax system and crack down on tax evasion, is a reduction in the basic level of corporate tax from 30% to 25%.

But analysts fear that other changes will create significant problems for domestic and international businesses. Plans to tax companies based on the gross value of their assets have raised particular concern and will have serious implications for investors in capital-intensive sectors. Energy groups, for example, which currently enjoy tax-holidays during the development phase of their projects, will potentially have to pay tax on their assets regardless of whether or not they have made a profit.

The government hopes that the new tax code will be enacted by 2011. Its introduction follows the raft of anti-avoidance legislation being introduced in the UK and US, as governments fight to increase their share of shrinking corporate tax revenues.