Corporate tax reduction to mainly benefit less than 1% of companies: Economic study

NEW DELHI: The sharp cut in corporate tax rates will benefit large companies more, since smaller ones were already paying lower rates, he said Friday.

The Minister of Finance, Nirmala Sitharaman, announced in September last year the reduction of the basic corporate tax rate to 22% from 30% for companies that do not seek exemptions and reduced the rate for some new manufacturing companies from 15% to fifteen%. . Including surcharges and terminations (levies to raise funds for specific purposes), the effective corporate tax rate will decrease by almost 10 percentage points to 25.17 percent.

The Pre-Budget Survey, presented in Parliament, said that most companies (99.1 percent) have a gross turnover of less than Rs 400 million rupees (say small and medium enterprises) and are already taxed at the tax rate 25 percent basic corporate. . With surcharge and cessation, your tax rate varies from 26 percent to 29.12 percent.

On the other hand, only 0.9 percent of the companies, that is, 4,698 companies have a gross turnover of more than Rs 400 million rupees and their effective tax rate varies from 30.9 percent to 34.61 percent.

Therefore, the impact of reducing the corporate income tax rate varies from a gain of approximately 3.2 percent to 13.5 percent of the existing tax liability for small and medium enterprises. and about 18.5 percent to 27.3 percent of the existing tax obligation for large companies, he said.

With the economic slowdown resulting in landslides in the collection of direct and indirect taxes, the Survey said that the next fiscal year is expected to pose challenges on the fiscal front.

While, on the one hand, global growth prospects remain weak, and growing trade tensions add to the risk; On the other hand, the pace of growth recovery will have implications for revenue collection, he said.

In order to boost slow demand and consumer sentiments, countercyclical fiscal policy may have to be adopted to create additional fiscal margin, he said.

During the first eight months of 2019-20, indirect tax collections have been silenced. Therefore, the buoyancy of GST revenues would be key to the resource position of the central and state governments.

On the expense side, the rationalization of subsidies, especially food subsidies, could be an important tool to expand the fiscal room for maneuver, he added.

The survey said that 2019-20 was a challenge for the Indian economy due to the slowdown in the growth rate.

Among the various reforms introduced during the year to promote growth and investment, the reduction in the corporate income tax rate was an important structural reform, which left a hole of Rs 1.45 lakh crore in the tax kitten.

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