Status quo likely on corporate tax rate

Subhomoy Bhattacharjee & P Vaidyanathan Iyer

The government will not touch corporate tax rates or Minimum Alternate Tax in the forthcoming Budget much to the disappointment of Corporate India.

The rethink by the Centre has come about in the face of a very sluggish revenue growth in the current fiscal.

It has apparently come round to the view that the rationalisation of the direct tax structure for corporate sector will have to wait another year. This is because the impact of the proposed rationalisation would have a been a lower rate of growth in corporate tax revenue in the next fiscal or even a likely fall from this source.

Instead the government is likely to introduce investment allowance for companies to claim tax exemptions.

Under the provision, the companies are entitled to claim tax exemption to the extent they plough their profits back into fresh investment.

The Centre was earlier toying with the idea of cutting corporate tax from 35 per cent(net of 2 per cent surcharge) to 30 per cent , which is levied on the profits of a company, and reorganising MAT. The latter is levied on companies which do not come within the purview of the corporate tax and hence pay the presumptive tax of 7.5 per cent on the book profit of the company.

While corporates were in favour of doing away with MAT altogether the Parthasarathi Shome committee had recommended tightening the MAT to levy it on the net worth of a company to avoid accounting jugglery and also suggested merging it with dividend tax.

But with the need to fund the increased government expenditure on account of the substantially hiked public investment in the next fiscal, the centre feels that it has no choice but to defer the move to cut taxes.

The rethink comes even after the government appointed a series of committes both within and outside the department to examine the issue. An internal committee under DG (IT) Kolkata, had reviewed the application of MAT, while a committee under NK Singh, member planning commission had also reviewd the turf.

Besides a committee had also reviewed the depreciation provisions to examine if they needed to be strengthened. This was because the government felt that corporates often misused the depreciation provisions to seek tax shelter.

The Centre is therefore likely to push ahead with the unfinished agenda for simplyfying indirect taxes, including cutting down on peak customs duties and further rationalising the excise laws.

The finance minister has already said that he is in favour of eliminating tax exemptions and the excise and customs taxation field is littered with exemptions.

Experts said that the government can garner a sizable increase in its revenue by doing with many of these exemptions.

YOU MAY ALSO WANT TO READ:
The Rediff Budget Special
Run-Up To The Budget
Money