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Corporation tax cut: Govt weighs hit to exchequer

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There were corporate tax cuts only for small businesses announced in the 2016-17 and 2017-18 Budgets

The finance ministry is assessing the fiscal cost of reducing from the current 30 per cent in 2018-19, as promised by the three years ago.


Any such move will be contingent upon the goods and service (GST) proceeds this year and projections for next year, say officials.


In the 2015-16 Budget, Jaitley had promised a reduction in rate from 30 per cent to 25 per cent in four years.


According to internal finance ministry calculations, any reduction to 25 per cent would result in a hit of Rs 70,000-80,000 crore to the exchequer. This is about 13 per cent per cent of the current year’s collection of Estimates (BE) of Rs 5.3 lakh crore.


Even a three percentage point reduction to 27 per cent will cost the about Rs 40,000-50,000 crore. That is something senior policymakers in North Block can ill-afford, given a fiscal deficit target of 3.2 per cent of gross domestic product in 2017-18, and expectations of a three per cent target in 2018-19.


Towards a road map to reduce to 25 per cent, the laid down a timeframe to simultaneously phase out exemptions given to the corporate sector to reduce the rate, simplify administration, and improve India’s competitive edge globally.


There were corporate cuts only for small businesses announced in the 2016-17 and 2017-18 Budgets.


Sources said that 2018-19 being the last full before general elections in 2019, the finance ministry is assessing the hit that the exchequer will take if it cuts the rate for the bigger companies as well.


“More than 80 per cent of the revenue in comes from large firms. Therefore, any reduction in for large firms will be a big hit as the exemptions are yet to phase out,” said a second official. He said the matter is being examined.


“The had promised in 2015-16 that will be reduced. However, any decision will depend upon what our projections for the are, this year and the next, as we have a tight fiscal space,” said the source.


While the rate for big companies is 30 per cent, the effective rate of taxation is close to 23 per cent on account of a large number of exemptions. The revenue foregone in 2016-17 on account of deductions stood at Rs 83,492 crore.


As the takes stock of its fiscal situation, there are a number of other concerns on the revenue side.


The revenue projections from the remain unclear. It stood at the lowest level in four months at Rs 83,000 crore in October. The refunds on account of input credit and integrated for exporters will place further stress on collections, going ahead.


Any fiscal slippage this year could lead to a deviation from the road map for the next year as well.


There could be a revenue shortfall of Rs 20,000 crore due to revision in the rates announced for over 200 items in November, Bihar Deputy Chief Minister had said in the last Council meeting in Guwahati. However, central officials maintain that was Sushil Modi’s views and any shortfall could be offset by greater compliance and increase in demand. They say clarity on the matter will emerge later.


Also, on the direct taxes front, and as reported by Business Standard, the Central Board of Direct Taxes has pitched for lowering of direct targets by Rs 20,000 crore, compared to the BE due to slowdown in economic growth.


On the non- revenue front, the Reserve Bank of India (RBI) has paid the a surplus this year of Rs 30,600 crore. The says it was expecting around Rs 43,000 crore. There is no certainty that the will cough up the surplus amount. Spectrum proceeds may also fall short of the target.


The only silver lining remains The ambitious target of Rs 72,500 crore could be exceeded by as much as Rs 20,000 crore, Business Standard had reported earlier this week.

First Published: Wed, December 06 2017. 20:27 IST

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