Taxation Blues

The Union Budget Fails to Live Up to the Expectations of Indian Inc. On the Tax Front Even as Private Investments Fail to Take Off.

- Dipak Mondal

IN THE BACKDROP of the US slashing its headline corporate tax rate from 35 per cent to 21 per cent, there were expectations that Finance Minister Arun Jaitley would also effect a cut for companies from the 30 per cent peak rate that they pay at present. However, these hopes were dashed, as the government took a more incremental approach. Jaitley reduced the tax rate from 30 per cent to 25 per cent, but only for companies with annual turnover of up to ₹250 crore. Though, as he said, this covers 99 per cent companies, it leaves out the larger taxpayers — those who accounted for more than 70 per cent of the corporate tax liabilities in 2016/17. “This is a dampener, especially when developed countries have been cutting corporate tax rates substantially,” says Amarjeet Singh, Partner, and North India Tax head, KPMG in India. Sanjay kumar, Senior Director, Deloitte India, echoes this. “Big corporates were thinking that in view of many countries, including the US and the UK, which are big investors in India, reducing their rates to 20-21 per cent, India will also do so. This creates a tax differential of about 10 per cent which, in any cost-benefit analysis for investing in India, will be difficult to bridge,” he says.

However, one argument in favour of this move is that many large companies with over ₹500 crore profit before tax, or PBT, are anyways paying less than 25 per cent. The revenue foregone document that comes with the Union Budget shows that in 2016/17, companies with more than ₹500 crore PBT paid an effective tax rate of 24 per cent.