Govt looks to lower tax burden on mid-size, large companies

Sticking to its promise to lower the tax burden on India Inc, the government is exploring the possibility of reducing the corporate tax rates for larger firms as well.

“This is in the discussion, especially as the government has committed to reduce the corporate income tax rate to 25 per cent. The idea this year is to ensure that a lower tax burden is now available to all companies,” said a person familiar with the development.

The exact quantum of the cut in corporate tax rate is expected to be finalised closer to the presentation of the Union Budget 2018-19, but revenue implications also have to be factored in.

“This can at least be done for some firms, if not all, with a fixed threshold of say up to an annual turnover of ₹100 crore,” said the person.

Finance Minister Arun Jaitley had in the Union Budget 2015-16 announced a gradual lowering of the corporate income tax rate to 25 per cent over the next four years, along with an elimination of exemptions. Previously, he had announced that new manufacturing companies who do not avail of any exemption would be charged only 25 per cent income tax.

The Minister had, in the Budget, cut the tax rate for companies with annual turnover of less than ₹50 crore to 25 per cent from 30 per cent. However, it was not cheap and the revenue forgone is estimated at about ₹7,200 crore per annum.

Finance Ministry officials also concede that revenue considerations have made it difficult to provide the benefit across the board to all firms. But, if the move goes through, it could act as a sweetener to firms post the Goods and Services Tax, as many have been wrestling with compliance burden.

“This can also give a boost to the Make in India programme by offering more competitive tax rates to companies working out of the countries,” pointed out another person in the know.

Experts are also keeping their fingers crossed and said revenue considerations would be critical in the Union Budget 2018-19. “We don’t foresee a reduction in the corporate tax rate this year, owing to shortage of revenue created by GST,” said Rakesh Nangia, Managing Partner, Nangia & Co LLP, adding that a reduction in corporate tax rate would have to be accompanied with phasing out of tax incentives.

Pointing out that corporate tax rate in most countries is low, another expert said, “Globally, India may end up in the higher tax bracket, which would hurt its competitiveness. But a reduction in tax rate would depend on the revenue position.”Net corporate tax collections rose to ₹2.07 lakh crore in the first six months of the fiscal, as against ₹1.86 lakh crore a year ago.

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