NEW DELHI: Soon after the NDA government came to power, finance minister Arun Jaitley — in the Budget 2015 — made clear his intent to adhere to the path of tax reforms, keeping in sync with global tax trends and move away from an exemption-based tax regime. He gave an assurance on the floor of Parliament that the basic rate of corporate tax would be cut to 25 per cent from 30 per cent over a four-year period.
Countries across the globe have either reduced or are proposing to cut their corporate tax rate. The recent major tax reforms in the US have led to a signifi cant decline in the corporate tax rate from 35 per cent to 21 per cent. The UK proposes to reduce it from 19 per cent to 17 per cent by 2020.
A reduced and stable corporate tax rate (which remains in force for 3-5 years) will facilitate ease of business and give an impetus to ‘Startup India’ and ‘Make in India’
Here’s a snapshot of promises made, and where India stands:
Promise 1:Corporate tax rate to be reduced from 30 per cent to 25 per cent over 4 years i.e. by 2019, accompanied by phasing out of incentives
1) For domestic companies with turnover of up to Rs 5 crore, the rate was reduced to 29 per cent in 2017
2) For new domestic companies registered after 2016, engaged in the business of manufacture of article or thing, the following options are available:
a) Pay tax at regular rate of tax at 30 per cent with regular deductions OR
b) Pay tax at 25 per cent largely without any tax deduction/accelerated depreciation
3) Phasing out of tax incentives has already been implemented from FY2016-17 (for example, deductions to an enterprise developing, operating or maintaining an infrastructure facility was available only when such activity was started on or before March 31, 2017. Ditto for the power sector)
4) However, owing to the increase in rate of surcharge from 5 per cent to 7 per cent (if net income of domestic companies is more than Rs 1 crore but up to Rs 10 crore) and from 10 per cent to 12 per cent (if net income of domestic companies exceeds Rs 10 crore), the highest headline tax rate for India Inc has increased from 34 per cent to 34.61 per cent
Promise 2: Abolish Dividend Distribution Tax or scrap DDT at multiple levels
1) Increase in the rate of Dividend Distribution Tax (DDT) from 16.995 per cent to 20.538 per cent has resulted in reducing the availability of cash for distribution to shareholders.
2) At present, a company does not have to pay DDT on dividends paid to its shareholders to the extent it received dividends from its subsidiary (on which DDT has already been paid by such a subsidiary). However, this does not apply where dividends are received from companies in which the recipient company holds less than 51 per cent equity. JV recipients of dividend income, for instance, do not benefit
Promise 3: Abolish Minimum Alternate Tax (MAT)
1) The highest MAT rate is 21.34 per cent for domestic companies having book profits that exceed Rs 10 crore
2) The FM, during his Budget 2017 speech, reasoned that MAT could not be abolished or reduced because, even as the exemptions’ phase-out begins from April 1, 2017, the full revenue benefi ts will be available only after 7-10 years when companies complete their availment period. But carry-forward of MAT was extended from 10 years to 15 years.
Promise 4: Boost to ‘Startup India’ and ‘Make in India’
1) Introduction of lower rate of corporate tax of 25 per cent for startups and SMEs having turnover of less than Rs 50 crore
2) Capital raised by an unlisted company from any individual (angel investors) against issue of shares in excess of fair market value is taxable as ‘Income from other sources’. Only startups approved by the department of industrial policy and promotion are exempt from this ‘angel tax’