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Hoping to give a boost to India Inc, which is yet to show definite signs of recovery, the Government plans to announce a 1-1.5 percentage point cut in the corporate tax rate.
“This is one of the announced commitments of the government. Along with the rollout of the Goods and Services Tax (GST), a reduction in the corporate tax rate could give an impetus to industry,” said an official close to the development.
While the proposal is under serious consideration, sources said the exact reduction would be finalised by next month, based on the trends of revenue collection. A final announcement will be made in the Budget 2017-18.
Government officials also conceded that the Make in India campaign that seeks to transform the country into a global manufacturing destination has not fully taken off, and a competitive tax rate may attract foreign investors.
Further, with General Elections in 2019, the government will now have to announce a clear strategy on the corporate tax cut.
Finance Minister Arun Jaitley had, in the Budget 2015-16, announced a plan to lower the corporate tax rate from the existing 30 per cent to 25 per cent over a four-year time-frame along with a withdrawal of exemptions.
“This will lead to higher level of investment, higher growth and more jobs,” he had said. At present, most companies pay corporate tax at about 33 per cent (inclusive of surcharge) though the effective rate for many of them is often lower due to various exemptions.
However, in 2016-17 Budget, he only lowered the tax rate by one percentage point to 29 per cent but restricted the benefit to only small companies with a turnover of upto ₹5 crore. For new manufacturing units, set up after March 1, 2016, he also announced a corporate tax rate of 25 per cent.
“The Centre must come out with a clear roadmap on reduction of corporate tax rates as this is one of the key considerations for foreign investors planning to do business in India. The corporate tax rate cut should also be extended to LLPs and firms, to bring them on a level playing field,” said Neha Malhotra, Executive Director, Nangia & Co.
The issue has also figured in pre-Budget discussions between industry associations and the Finance Ministry.
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