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The media and sections of corporate India cheered Arun Jaitley’s move to reduce corporate tax in a staggered manner over the next four years. But for the 2015-16 fiscal, companies will actually see their tax rates go up because of the increase in surcharge, which the Finance Minister failed to mention in his Budget speech.
But combing through the details in the annexure reveals that companies will actually have to shell out more in the coming fiscal. This is thanks to the 2 per cent increase in surcharge paid on corporate tax and on distribution of dividends. Indirect taxes — service and excise duty — have also been hiked in the current Budget.
Surcharges For companies with an income of up to ₹10 crore, the surcharge rate will go up from 5 per cent to 7 per cent. For those with an income above ₹10 crore, the surcharge will increase from 10 per cent to 12 per cent.
On the one hand this increases the effective tax rate for companies (income more than ₹10 crore) from 33.99 per cent to 34.61 per cent. On the other, this pushes up the effective MAT (Minimum Alternate Tax) rate from 20.96 per cent to 21.34 per cent; contrary to what corporates were gunning for.
The hikes do not stop there. Companies paying rich dividends to their shareholders now face a higher surcharge of 2 per cent on distribution of dividends.
So, companies will pay higher taxes in the coming fiscal. Can they look for some respite in 2016-17? Well, that will depend on what tax incentives the Finance Minister chooses to remove in his effort to rationalise exemptions. Companies in the pharmaceutical, power generation and distribution, and oil and gas sectors have been enjoying various tax breaks. For many of them the effective tax rate is far below the proposed 25 per cent tax rate. If Jaitley takes back some of these sops, India Inc will be up in arms.
Indirect taxes The basic excise duty rate will go up from 12.36 per cent to 12.5 per cent. Service tax too will go up from 12.36 per cent to 14 per cent. There is also the threat of a further increase in the service tax if the Government imposes a ‘Swachh Bharat cess’ of up to 2 per cent.
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