India Inc lobbies for corp tax cut, finmin resists
December, 15th 2008
With hectic lobbying on for lowering corporate taxes as part of the forthcoming stimulus package, a section of finance ministry has
strongly resisted any move even to tinker with current tax rates.
There have been discussion in North Block whether there are any scopes for reducing the corporate taxes particularly after the government decided to take a hit of Rs 8,700 crore on indirect tax collection as a part of the recent fiscal package.
SundayET made an attempt to find out whether the government would lower corporate taxes to boost the current sentiment. We have been saying very clearly that effective corporate tax rate in the country is less than 20%. Our direct tax loss because of SEZs (Special Economic Zones) alone is over Rs 50,000 for a period of four years. If the corporate sector is ready to do away with the existing exemptions, we will be happy to concede to a 25% flat rate, a senior CBDT official said.
The government collected Rs 1,90,000 crore as corporate tax in FY08, and is expecting a much higher number this year. In India, corporate tax including surcharges and education taxes varies from 33% for domestic companies to over 42% for foreign firms whereas it is between 17 to 20% in Hong Kong and Singapore.
Secretary general of industry body Ficci Amit Mitra said that the government should use tax as an instrument to stimulate the economy. The government has already done that in case of indirect taxes by the way of radically reducing Cenvat by 4%. It should now be coupled with direct tax cut to the level of 25%. If the government wants to arrest the downturn, multi-instrumental initiatives need to be adopted. The recent IIP (Index of Industrial Production) numbers have indicated how grave the situation has been, the secretary general said.
Sources have, however, told SundayET that the biggest challenge for the government is that it will need to change the I-T act in Parliament even if it marginally lowers the corporate tax rate.
A secretary in the committee of secretaries (CoS) looking into the financial turmoil on a fairly regular basis, told SundayET that the recent package was a part of the governments three-pronged strategy to deal with the crisis.
Firstly, the RBI is easing the liquidity situation where the policy space is still quite large. Secondly, there would be sops for creating demands. And thirdly, there would be tax sops to boost the economy, he said.