Millennium Post

Govt gifts India Inc 5-bps I-T cut in four years

After a gap of 10 years, the government on Saturday announced a 5 basis points’ (bps) cut in corporate tax to 25 per cent over four years starting April 2016, but tax exemptions and incentives to industry will be withdrawn.

Jaitley, in his first full-year budget, said the basic rate of corporate tax in India at 30 per cent is higher than the rates prevalent in the other major Asian economies, making domestic industry

Moreover, the effective collection of corporate tax is about 23 per cent.

“We lose out on both counts, i.e. we are considered as having a high corporate tax regime but we do not get that tax due to excessive exemptions. A regime of exemptions has led to pressure groups, litigation and loss of revenue. “It also gives room for avoidable discretion. I, therefore, propose to reduce the rate of corporate tax from 30 per cent to 25 per cent over the next four years,” he said.

Jaitley said the move will lead to higher level of investment, higher growth and more jobs. The minister further said the process of reduction has to be necessarily accompanied by rationalisation and removal of various kinds of tax exemptions and incentives for corporate taxpayers, which incidentally account for a large number of tax disputes.

“I wanted to start the phased reduction of corporate tax rate and phased elimination of exemptions right away; but I thought it would be appropriate to give advance notice that these changes will start from the next financial year,” he said. Government’s stated policy, he said, is to avoid sudden surprises and instability in tax policy. “Exemptions to individual taxpayers will, however, continue since they facilitate savings which get transferred to investment and economic growth,” the minister said.

In 2014-15, the revenue forgone on account of exemptions and incentives is estimated at Rs 62,399 crore. Corporate tax collection in the current fiscal is estimated at Rs 4,26,079 crore. For 2015-16, the collection is estimated at Rs 4,70,628 crore. In 2005, the then Finance Minister P Chidambaram had reduced the corporate tax to 30 per cent from 35 per cent. Moreover, India, he said, has now embarked on two game changing reforms - GST and the JAM Trinity - Jan Dhan, Aadhar and Mobile - to implement direct transfer of benefits. GST will put in place a state-of-the art indirect tax system by April 1, 2016 while the JAM Trinity will allow transfer benefits in a leakage-proof, well-targetted and cashless manner. Jaitley said a Monetary Policy Framework Agreement has been concluded with RBI to keep inflation below 6 per cent.

The Finance Minister counted five major challenges faced by the Indian economy which are agricultural income under stress, weak private sector investment in infrastructure, decline in manufacturing, resource crunch in view of higher devolution in taxes to states and maintaining fiscal discipline.

Underlining the need to raise public investment in infrastructure, he proposed increased outlays on roads and the gross budgetary support to the railways, by Rs 14,031 crore and Rs 10,050 crore respectively.

.. And Wealth tax abolished

Asking rich and wealthy to pay higher tax, Finance Minister Arun Jaitley on Saturday abolished the wealth tax but increased the surcharge to 12 per cent on individuals earning Rs 1 crore and above annually and on firms with an annual income of Rs 10 crore or more.

Moreover, the minister also introduced a surcharge of 7 per cent on companies having an income between Rs 1 crore and Rs 10 crore.

The new measures will lead to tax collection of Rs 9,000 crore whereas the wealth tax could earn only Rs 1,008 crore, he said.

“With this 2 per cent additional surcharge a collection of Rs 9,000 crore is targeted against a tax sacrifice of Rs 1,008 crore (on account of abolition of Wealth Tax),” Jaitley said while presenting the Budget for 2015-16.

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