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Tax surcharge may be done away with
November, 22nd 2006

Cut in basic income-tax rates ruled out. New taxes unlikely to be imposed

The finance ministry is unlikely to cut the basic corporate and income-tax rates in Budget 2007. It will, however, consider doing away with the 10% surcharge on companies and a section of individual taxpayers.
A senior revenue department official said, Our tax rates are among the lowest in the world and we cannot really think of lowering them further. He added that the three slabs of income-tax were likely to continue and that no new direct taxes were expected in the Budget.
Finance minister P Chidmabarams statement at the recently-concluded Economic Editors Conference that there was scope for further moderation of tax rates had fuelled expectations of a cut in basic corporate and income-tax rates. At present, the peak income-tax and corporate tax rates stood at 30%.

According to revenue department officials, surcharges distort the tax structure. Eliminating these would not only reduce tax incidence on individuals and companies but also make tax administration more efficient. The 10% surcharge is applicable to individuals with income exceeding Rs 10 lakh. The income bracket for the surcharge was hiked in Budget 2006-07 from Rs 8.5 lakh a year, making it applicable to a lower number of people.

The officials said the department was calculating the impact on tax collections if surcharges were removed. The surcharge is not just on income-tax and corporate tax, but also on dividend distribution tax and income distribution tax from mutual funds, another official pointed out.

In addition to the surcharge, the United Progressive Alliance government introduced a 2% education cess on the tax plus surcharge, on both individual and corporate taxpayers. A cess on fuel is also levied to fund road construction.

The officials, however, said the government was unlikely to remove or reduce these two cesses, since they were for specific purposes in step with the National Common Minimum Programme.

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