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1% cut in corporate taxes would cost exchequer Rs 15,000 crore: Adhia

By
hashmukh adhia, corporate tax

New Delhi: Finance Ministry said it refrained from reducing the corporate tax rate by 1% in 2016-17 Budget as it would have resulted in revenue sacrifice of Rs 15,000 crore and impacted the fiscal consolidation programme.

"The Finance Minister had his own limitations in terms of resources... You know how much the bill is going to come for 1% deduction? It means the government has to take a hit of Rs 15,000 crore," Revenue Secretary Hasmukh Adhia said at the PHD Chamber event.

Finance Minister Arun Jaitley had last year promised to lower corporate tax rate from 30% to 25% over four years and it was expected that he would begin the process of gradual reduction of tax rates from 2016-17.

The government has already come out with a draft roadmap for phasing out of corporate tax exemptions to keep the whole exercise of reducing tax rates revenue neutral.

Adhia said the corporate tax rates cannot be reduced until the benefits of phasing out exemptions start coming in.

"The benefit of exemptions phase out is coming to the government only in 2017-18, that also in the first year we will get a small benefit of 3,000 crore," he said.

Jaitley in his 2016-17 Budget, announced some concessions for corporates, like 25% tax on new manufacturing units. He also reduced the tax on small units with a turnover of Rs 5 crore from 30% to 29%.

As regards fiscal deficit, the Finance Minister brushed aside the suggestion of boosting growth by higher public spending and decided to stick to the fiscal consolidation path of reducing the deficit to 3.5% of GDP in 2016-17 from 3.9% expected in current fiscal.

Referring to GST, Adhia said that efforts would be made to implement it as early as possible.

He also appealed to the industry to support the government in its attempt to implement GAAR by 2017.

He said the Minimum Alternate Tax (MAT) rates cannot be brought down at this juncture as the government has already kept a sufficient space for corporates to enjoy tax exemptions in other forms.

"GAAR implementation ought to happen as scheduled as foreign institutional investors and such other portfolios have been escaping capital gains tax in one form or the other, keeping the domestic industry at disadvantages and, therefore, it should come out openly in support of the government to implement it as scheduled," Adhia said.

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