In a bid to make India’s corporate tax structure competitive as against other economies, finance minister Arun Jaitley proposed a 5% cut, bringing it down to 25% from the current 30%.
The move comes after 10 years, with a sunset clause of four years.
Iterating his intentions behind the move, Jaitley said, “The basic rate of corporate tax in India at 30% is higher than the rates prevalent in other major Asian economies, making our domestic industry uncompetitive. Moreover, the effective collection of corporate tax is about 23%. 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 because of 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% to 25% over the next 4 years.”
Jailtley also added that the reduction in tax will pave way for higher levels of investment, higher growth and will help generate more jobs in the country.
The minister further said that the process of reduction has to be necessarily accompanied by rationalisation and removal of various kinds of tax exemptions and incentives for corporate taxpayers, which incidentally account for a large number of tax disputes.
“I wanted to start the phased reduction of corporate tax rate and phased elimination of exemptions right away but I thought it would be appropriate to serve an advance notice that these changes will start from the next financial year,” he said.
Corporate tax collection in the current fiscal is estimated at Rs 4,26,079 crore. For 2015-16, the collection is estimated at Rs 4,70,628 crore.
In 2005, the then finance minister P Chidambaram had reduced the corporate tax from 35% to 30%.
In 2014-15, the revenue forgone on account of exemptions and incentives is estimated at Rs 62,399 crore.