India Inc may need to wait a bit longer than expected for a lower tax rate. The government is yet to deliver on its promise to reduce corporate taxes to 25% from 30% by 2019. A senior tax official has hinted it might not be on the cards in the interim Budget.
"We need to augment the taxpayers' base. And only when we feel confident that the anti-avoidance measures can yield the desired revenue, that would be stage when we can think of reducing corporate tax rates substantially," member (legislation) of the apex direct tax body Central Board of Direct Taxes (CBDT), Akhilesh Ranjan, said at the international tax conference organised by the industry body CII in the national capital.
Rajan is also heading the task force on Direct Tax Code (DTC) which is working to simplify the country's tax laws. His comments on corporate tax come at a time when the finance ministry is preparing for the interim Budget before general elections are held in the country a few months down the line.
The government had reduced the tax rate to 25% for small companies with a turnover of up to Rs 50 crore in the Budget 2017-18. Though the move benefited 99% companies, it did not cover the businesses which contribute most to the tax collection.
Though the move benefited 99% companies, it did not cover the businesses which contribute most to the tax collection.
As the government will be presenting its last Budget on February 1, the big businesses, too, are expecting it to slash the basic corporate tax like other countries across the globe have done. However, the Centre may not go ahead with the tax cuts until it gets 'desired revenues.'
"The corporate tax rate must be decided by each country as per its own needs. The fact that European Union is moving towards a certain level of corporate taxation or the mere fact that the United States brought down the tax rate is not really enough to sway us to do anything in a knee-jerk sort of reaction. We have to look at what India needs," the CBDT member said.
Rajan feels that the reduction in tax rates has to be accompanied by a host of measures.
"Most importantly, it has to be accompanied by very strong anti-avoidance mechanisms. If the countries in EU are talking about reducing rates, they are also talking about anti-avoidance measures. If the US has reduced the tax rate to 21%, it also has anti-avoidance tax. It has a tax on intangibles. It has various ways in which it is ensuring that the tax base is augmented," he said.
For the taxpayers' base to increase, "one way, of course, is the compliance mechanism. The tax administration is already doing it. But probably we may have to come up with more new initiatives which are directed more at anti-avoidance," he said, adding that a cautious approach is needed while doing that.
The General Anti-Avoidance Rules (GAAR) law and the Place of Effective Management (POEM) rules have been introduced in the past. "But GAAR has been riddled with so many checks and balances that it may not be as effective as it was meant to be," he said.
WAIT GETS LONGER
- Govt to present interim Budget on February 1
- Govt promised in Budget 2015 to reduce corporate tax to 25% by 2019
- Reduced tax rate for small companies in 2017-18
- Businesses paying max taxes not covered under it
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