Following up on the Finance Minister’s proposal in the Budget, Revenue Secretary Shaktikanta Das said that the government in the next 45 days would unveil the roadmap of how it would go about reducing the corporate tax rate to 25 per cent over four years, and eliminate the existing incentives and exemptions.
Finance Minister Arun Jaitley in his Budget speech had said that the corporate tax would be reduced from 30 per cent to 25 per cent over four years, and the Revenue Secretary reiterated this on Wednesday, adding that the plan ahead would be revealed soon.
“We are now currently working on the removal, elimination of exemptions and incentives and some time in the next 45 days or so, we will be spelling out the road map for removal of exemptions and incentives,” Mr. Das said.
In his Budget speech, Mr. Jaitley had pointed out how the current corporate tax structure meant that “we get neither revenues nor investments”.
“The basic rate of corporate tax in India at 30 per cent is higher than the rates prevalent in the other major Asian economies, making our domestic industry uncompetitive,” he had said in his Budget speech. However, he added that, due to the various exemptions, the effect rate of collection was only 23 per cent.
The plan to go ahead with reducing the corporate tax rate and eliminate exemptions will be put up in the public domain so that the Finance Ministry can take cognisance of any inputs from the stakeholders, Mr. Das said.
The reason behind the phased manner of reduction the tax rate, according to Das, was that government finances cannot handle such a large cut in a single year. “The fiscal deficit is sacrosanct and cannot be compromised, so there is the whole issue of affordability in a single year. You cannot reduce the tax from 30 per cent to 25 per cent (in a single year),” he said.
The fiscal deficit for April-May FY16 was around Rs 2.08 lakh crore, which was 37.5 per cent of the full year’s budget estimate of Rs 5.56 lakh crore. This is better than the situation in the same period the previous year, when the fiscal deficit was 45.3 per cent of the full year’s target.
