The corporate sector’s long pending demand for abolition of the surcharge on taxes companies pay found partial redressal in Finance Minister Pranab Mukherjee’s Budget unveiled on Friday.
Mukherjee proposed to cut it from 10 per cent to 7.5 per cent, a decision that cheered the stock market but fell short of expectations of companies that were lobbying for scrapping the additional burden. “This will promote inter-se equity among corporate tax payers,” Mukherjee said in his Budget speech.
Though the corporate tax rate in the country is at 33 per cent, a plethora of exemptions bring the effective rate of corporate tax down to 22.78 per cent, a finance ministry analysis stated. The reduction in surcharge would result in a reduction of the effective tax rate by 0.77 percentage points.
“The reduction in surcharge and greater deductions for in-house R&D activities are welcome although they will be partially diluted by an increase in MAT for companies on a growth path,” said H.M. Nerurkar, managing director, Tata Steel.
“Though this is a welcome step for the corporates, it would have made a much bigger impact had the surcharge been done away with altogether,” said Nabin Ballodia, director, KPMG.
The problem though, of large companies paying the least tax by making use of various exemptions, still remains a hurdle for the government’s reformist agenda. The effective rate of tax for smaller companies having a profit before tax less than Rs 1 crore is 25.52 per cent whereas for a large company with a profit of more than Rs 500 crore, it is only 22.05 per cent. The Income Tax Department received 3.66 lakh corporate returns electronically up to December 31, 2009 for this fiscal, with a cumulative profit before tax of Rs 6,68,581 crore. Inclusive of the existing surcharge and education cess, corporate tax returns amounted to Rs 1,52,280 crore.
Corporate IT collections have seen an impressive growth recently helping the share of direct taxes to climb to 55 per cent of the total tax revenue — a trend that economists say makes the taxation system progressive and more equitable.