The corporate sector has found an unexpected ally on tax matters the income tax departments western region which accounts for the largest share of collections.
In its customary pre-budget proposal, the western region, comprising Mumbai, Nagpur and Gujarat, has deviated from its long-held position to suggest a reduction in the corporation tax rates in the Union Budget.
The position is similar to the draft Direct Tax Code that had proposed a reduction in corporation tax to 25 per cent from 30 per cent at present. The Direct Tax Code had said that the rate will be tax-neutral as it had also proposed a withdrawal of exemptions, including area-based incentives.
In its feedback, the Central Board of Direct Taxes had suggested that corporation tax be retained at the present rate, if not increased. The National Academy of Direct Taxes had estimated that the implementation of the draft Direct Tax Code would result in a revenue loss of Rs 55,000 crore during 2011-12.
Officials said that the recommendation for lower corporation tax has been made with a view to improve compliance and make better use of the resources for tracking tax evasion.
They added that with companies taxed all the way from procurement of raw materials to retailing, there was little point in maintaining such high rates of corporation tax. They pointed out that India has amongst the highest tax rates in the world.
In addition to lower corporation tax, the western zone has also made a strong pitch for bringing agricultural income within the tax ambit, a politically contentious issue for several years. The field formation is of the view that the law should be amended to maintain a tax-free slab and any income from agriculture above the prescribed threshold should be taxed.
During its investigations, the tax department observed that income from agricultural land was not related to farming activities alone. Even when an assessee is using the land for other purposes or selling it for industrial or other purposes, the income cannot be taxed, said an official.