Budget Special. A mixed bag for corporate sector

Domestic corporates have got a “mixed bag” from the Budget with no significant relief coming their way on minimum alternate tax (MAT) or dividend distribution tax.

In the run-up to the Budget, corporates were lobbying hard for doing away or at least reduction of MAT rate

The only so-called tangible relief that corporates seem to have got is a promise that corporate tax rate will be reduced by five percentage points over next four years.

However, it will be accompanied by rationalisation and removal of tax exemptions and incentives for corporate taxpayers.

This corporate tax rate reduction will not start kicking in from financial year 2015-16 for corporates, say tax experts.

Even as corporate tax rate reduction may be a reality in coming years, domestic corporates have been visited with a 2 per cent additional surcharge effective 2015-16. This would be the case if their taxable incomes were to exceed ₹1 crore.

Jaitley said in his Budget speech that he wanted to start the phased reduction of corporate tax and phased elimination of exemptions right away, but decided otherwise.

“I thought it would be appropriate to give advance notice that these changes will start from the next financial year,” he said.

“Our stated policy is to avoid sudden surprises and instability in tax policy,” Jaitley said.

In India, the effective collection rate of corporate tax is 23 per cent, although the tax rate is 30 per cent.

Jaitley said that a regime of exemptions has led to pressure groups, litigation and loss of revenue. This also gave room to avoidable discretion, he added.

Many tax experts feel that this 2 per cent surcharge on corporates could be read as an attempt to offset the decision of the Centre to do away with wealth tax. Currently, wealth tax is levied on both corporates and individuals.

Ketan Dalal, Senior Partner, PwC India, said the intention to phased reduction of corporate tax over next four years from 30 per cent to 25 per cent is a big positive. “The intention to phased reduction of corporate tax over next four years from 30 per cent to 25 per cent is a great positive, but not reducing MAT and DDT, both of which are at 20 per cent, is somewhat disappointing,” Dalal told BusinessLine . Girish Vanvari, National Head of Taxes, KPMG in India, said a roadmap for a futuristic tax regime of lower corporate rates and phasing out of exemptions over the next four years  heralds an era of a transparent tax regime of no surprises.  

“The lack of fiscal space did not permit meeting of the popular expectations of increase in slabs and housing interest deduction for individuals or abolition or reduction of MAT for SEZs and infra companies. But in all a fine balancing, inclusive and futuristic Budget,” he said.

Neeru Ahuja, Partner, Deloitte, Haskins & Sells, said that expectations with regard to lowering MAT rate to encourage manufacturing has not been met.

“People who were expecting big-bang reforms will be disappointed but its seems to be a balanced and rational Budget that promised to lower corporate income-tax, defer GAAR, abolish wealth tax and other positive moves,” she said.

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