Reduction of corporate tax for the benefit of companies to 1%, SMEs paying less tax: Eco Survey
The sharp reduction in the corporate tax rate will benefit large companies the most, as smaller ones were already paying lower rates, the 2019-20 economic survey said on Friday.
Finance Minister Nirmala Sitharaman announced in September last year the lowering of the basic corporate tax rate from 30% to 22% for companies that do not claim exemptions and reduced the rate of certain new manufacturing companies at 15% against 25%. . Including surcharges and taxes (levies to raise funds for specific purposes), the effective corporate tax rate will fall by nearly 10 percentage points to 25.17%.
The pre-budget survey, tabled in parliament, said most businesses (99.1%) have gross turnover below Rs 400 crore (e.g. small and medium enterprises) and are already taxed at the base rate of corporation tax of 25%. With surcharge and deductible, their tax rate varies from 26% to 29.12%.
On the other hand, only 0.9% of companies, or 4,698 companies, have a gross turnover above Rs 400 crore and their effective tax rate ranges from 30.9% to 34.61%.
“Thus, the impact of the reduction in the corporate tax rate ranges from a gain of around 3.2% to 13.5% of the existing tax for small and medium-sized businesses to around 18, 5% to 27.3% of existing tax for large corporations,” it said.
With an economic slowdown resulting in slippages in direct and indirect tax collections, the Survey indicates that the next fiscal year should pose challenges on the fiscal front.
“While on the one hand the outlook for global growth continues to be weak, with escalating trade tensions adding to the risk; on the other hand, the pace of growth recovery will have implications for revenue collection,” did he declare.
To boost sluggish demand and consumer sentiment, countercyclical fiscal policy may need to be adopted to create additional fiscal space, he said.
During the first eight months of 2019-2020, indirect tax collections were reduced. “Therefore, buoyant GST revenue would be key to the resource situation of central and state governments.”
On the expenditure side, streamlining subsidies, especially food subsidies, could be an important tool to expand fiscal space, he added.
The survey indicates that 2019-2020 has been challenging for the Indian economy due to decelerating growth rate.
Among the various reforms introduced during the year to promote growth and investment, the reduction in the corporate tax rate was a major structural reform, which left a hole of Rs 1.45 lakh crore in the tax kitty.