Will Jaitley cut corporate tax rate?

As Finance Minister Arun Jaitley sets out to present the last full Budget of this government in less than a fortnight, there are speculations on whether he will keep his promise of further reducing the corporate tax rates.

While a view is emerging that Jaitley may not reduce the rates given the fiscal situation, a section of India Inc still remains optimistic.

“Though he (Jaitley) would like to reduce the corporate tax rates, he doesn’t have much room,” said an official in the know. However, the personal tax front may see some tweaking at the lower bracket, sources said.

“There is a political will to do it (reduce corporate tax rate), but given the fiscal situation it seems difficult. Besides, this Budget is likely to be more of a political document than ever given that elections are at the door step,” said a person closely associated with the developments.

A pre-Budget survey of 150 CFOs, tax heads and senior finance professionals conducted this month by EY reveals that 20 per cent of the respondents believe that corporate tax rate will be lowered to 25 per cent and the surcharge would be withdrawn.

While 48 per cent of those surveyed were of the view that corporate tax rate would be lowered but the surcharge would continue, 33 per cent said that status quo would be maintained.

According to EY, given the global trend of lower corporate tax rate and the earlier assurance given by the Finance Minister, the overall expectation is that the government would lower the rates. However, it is unlikely that the surcharge or the tax dividends will be lowered as the government continues to grapple with a delicate fiscal situation.

Many within the government also believe that corporate tax rate may be untouched though the Finance Ministry is under pressure to keep the promise it made four years ago.

However, Rohinton Sidwa , Partner - Corporate Tax at Deloitte Haskins & Sells, says that now is the time to start delivering on promises.

“The tax rate promise is four years old. The Finance Minister has to deliver in this Budget, and up until now he has opened it up in steps. Currently, if you are a new company in manufacturing, the corporate tax rate is capped at 25 per cent from the start.”

So what will be the thrust of the Budget?

“It will be a practical Budget focusing on deliverables like completing the existing schemes. Expanding the base of some of the popular or successful programmes like distribution subsidised LPG connections, MUDRA scheme, and ensuring that rural economy grows,” said a BJP leader.

Asked on the issue raised by economists at the recent meeting with Prime Minister Narendra Modi of need to shift focus to increasing farmers’ income rather than just production, an official said, “the Budget could give a whole new architecture for the sector.

“Focus could be on how to bring down the input costs for the farmers – like making seeds cheaper or incentivising irrigation and also make available electricity to farmers. Incentives may also be given for food processing and associated industry.”

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