A 2% increase in effective rate could yield Rs 30,000 cr
Corporates that effectively pay less than 24 per cent tax may find some of their exemptions being taken away soon. The Finance Ministry is keen to ensure that all sectors of industry pay tax at an effective rate of at least 24 per cent or more.
At present, the normal rate of corporate tax is 30 per cent but various exemptions, tax expenditures and sops bring the average effective rate to 24 per cent. According to 2012-13 Budget documents, out of 74 sectors, there are 24 whose effective rate is less than this average.
Finance Minister P. Chidambaram, addressing the media after a review meeting with Chief Commissioners of Income Tax and the Director General (Investigation), said, “The average effective corporate tax rate is 24 per cent. Many industries are below this average. We will have to see whether they are tax compliant and whether within the present law are they paying taxes that they should be paying. Even if the average goes up by two per cent, back of the envelope calculations show that Rs 30,000 crore will come.”
Chidambaram, however, refused to divulge the name of sectors where the effective rate is less than the average. But he did assure, “It is important that we approach this matter scientifically and in a systemic way rather than in a hit and run way.”
By focussing on some specific sectors and increasing the tax base, the Finance Minister aims to achieve 12 per cent tax-GDP ratio. This ratio has come down to 10.1 per cent in 2011-12 from a high of 11.9 per cent in 2007-08.
The Government has fixed a target of Rs 5.70 lakh crore to be mobilised through direct taxes during current fiscal. This requires collection to grow at 15 per cent but at present, the growth rate is 10.5 per cent.
Friendly Tax Dept
The Finance Minister said, “Tax department will be friendly, will be helpful, will be interactive, will help you pay your taxes...nobody needs to harbour any unnecessary fear of the Tax Department.”
Asking assessees to pay advances taxes by the due date, he said “Paying taxes is a mark of civilisation. If I pay more taxes, I should be more happy and more proud. I am making more money and I am paying more taxes.”
The corporates would be paying the second instalment of advance tax and individuals their first instalment of advance tax by September 15.