Budget 2016: Govt may cut corporate tax by 1%, say experts

New Delhi: Finance Minister Arun Jaitley is likely to slash corporate tax rate by about one percent and may put an end date for certain exemptions availed by the industry, in his Budget for 2016-17, tax experts said.

“To begin with, one percent cut in the corporate tax rate, gradual phasing out of accelerated tax depreciation and a sunset clause for the tax deductions, coupled with reduction in MAT, will set the tone for this year’s Budget,” KPMG (India) Partner Tax Vikas Vasal said.

Jaitley in his last Budget had announced phased reduction in corporate taxes over four years to 25 percent from present 30 percent, and also simultaneous withdrawal of exemptions.

Economic Laws Practice Partner Rohit Jain said since the government is pushing domestic manufacturing, in the next Budget it would be a challenge to do away with exemptions.

“The reduction could be one per cent or so in the next Budget. The minister might put an end date to certain exemptions and pave the way for gradual withdrawal,” Jain added.

Currently, there are various tax concessions under the Income-Tax Act, 1961. The prominent ones are accelerated depreciation on various assets; weighted deduction for capital expenditure incurred on various projects; weighted deduction for expenditure incurred on manufacture or production of specified articles; expenditure incurred on scientific research; various skill development projects etc.

“In an event of a phase out approach, a reduction of 1-1.25 percent in the corporate tax rate could be expected,” Deloitte Haskins & Sells LLP Partner CA Gupta said.

Also, there is a possibility that no extension of sunset clause in existing case and/or a sunset clause is introduced in particular cases, he said.

“It would be an ideal situation if the complete phase out is undertaken only when the corporate tax rate is reduced to 25 percent,” Gupta added.

The basic rate of corporate tax in India is at 30 percent, which is higher than the rates prevalent in other major Asian economies, making domestic industry uncompetitive.

Moreover, the effective collection of corporate tax is about 23 percent after taking into account various exemptions.

The Finance Minister had earlier said:”We lose out on both counts, i.e. We are considered as having a high corporate tax regime but we do not get that tax due to excessive exemptions. A regime of exemptions has led to pressure groups, litigation and loss of revenue.

“It also gives room for avoidable discretion. I, therefore, propose to reduce the rate of corporate tax from 30 percent to 25 percent over the next four years.”

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Source:zeenews