Finance Minister Arun Jaitley may not be able to keep his promise of reducing the corporate tax in Budget 2016-17. North Block is, in fact, looking to keep the rate unchanged and also remove a number of exemptions.
According to the plan under discussion, while the corporate tax rate may remain at the current 30 per cent in the next fiscal, some sweeteners could be offered to India Inc in the form of benefits under the Start-Up India, Make in India and Smart City initiatives.
A call on the corporate tax is expected by the end of the week, highly placed sources told BusinessLine .
“The Budget-making team of the Finance Ministry seem to be in a fix as Budget 2015-16 had given an indication of a reduction in corporate tax rates. A section of the officials hold the view that a marginal reduction in rates could be considered,” an official associated with the developments said. Jaitley had announced in Budget 2015-16 that the corporate tax rate would be reduced to 25 per cent over the next four years while exemptions to corporates would wound up.
Leaving the tax rate unchanged would give some cushion to the exchequer which faces ₹1.10-lakh crore additional payout on account of the Seventh Pay Commission recommendations and the One Rank One Pension scheme. The Finance Ministry had in November 2015 also issued a draft roadmap for rolling back exemptions over the next two years.
Corporate tax collections grew a robust 10.44 per cent between April and January this fiscal and the government is hopeful of a further improvement next fiscal as the economy revives.
However, if Jaitley decides against reducing corporate tax rates, the move will not go down well with industry, which has been seeking a concrete roadmap for withdrawal of exemptions and a simultaneous cut in the corporate tax rate.
Service tax re-jig Jaitley’s team is also weighing the option of raising the service tax rate to 16 per cent in 2016-17 as the government gets ready to roll out GST ( Goods and Services Tax). “Under the GST, the tax rate on services will be higher and this could be a good time to hike the rate as a preparatory move,” said a senior official, adding that it will also boost tax collections.
Services are currently taxed at 14.5 per cent after being increased from 12.36 per cent in June 2015 in line with a Budget announcement.
Tax experts said industry is expecting such a move. “This will be a concrete step in the direction of GST where services are likely to be taxed at 17-18 per cent,” said Anita Rastogi, Partner, Indirect Tax, PwC.