All-Encompassing Corporate Tax Rate Cut Would’ve Led To Rs 60,000 Crore Loss, Says CBDT Chairman
What prompted a partial relief on corporate tax rates and an increase in customs duty?
Hike in customs duty on as many as 60 goods by 2.5 percent to as much as 50 percent, lowering of corporate tax rate for a select group of companies, including the concept of virtual permanent establishment by specifying significant economic presence for digital economy. Finance Bill 2018 has brought in a slew changes on both the indirect and direct tax front.
BloombergQuint spoke with Sushil Chandra, chairman of Central Board of Direct Taxes and Vanaja Sarna, chairman of Central Board of Excise & Customs on the thinking behind the tax changes in Budget 2018.
Here are edited excerpts from the conversation.
Developing economies like China, Vietnam, Singapore have a corporate tax rate between 17-25 percent. Compared to this, India’s effective corporate tax rate for companies with a turnover of over Rs 250 crore continues to be 35 percent. Do you believe that this will make India a less tax competitive destination?
Chandra: The finance minister had said that by reducing the tax rate to 25 percent for companies with up to Rs 250 crore turnover, we have covered 99 percent of companies. So, it’s only the 1 percent that are in tax net of 30 percent. So, large number of companies have been taken care of by putting them under tax net of 25 percent. Only 7000 companies are now there in the 30 percent tax net.
When the government came to power, it said that there will be a 25 percent rate and it will be done in a phased manner. So, last year we lowered the rate to 25 percent for companies with turnover of up to Rs 50 crore and this year we have increased it to Rs 250 crore. If we would have taken all the companies into the 25 percent net, there would have been loss of Rs 60,000 crore to the exchequer. Therefore, we thought up to this year, we will put up to Rs 250 crore turnover under the net of 25 percent. Personal income tax rate is 30 percent and in many countries it is much higher than this. So, we have to take the holistic picture. First rate of personal income tax is 5 percent which is lowest in the world. It is quite competitive. It is not that we have a higher tax rate.
What is the thought behind increasing the customs duty and bringing in a surcharge of 10 percent – will it lead to a boost in domestic manufacturing and if not, then an increase in prices or is it simply a revenue generation tool?
Sarna: This is a big fillip to the MSME sector. Many of these things are manufacturable in India. We need to give a fillip to Make in India. The items chosen will not lead to inflationary trends or prices going up. These are items for the upper middle class. So, we have to make similar kind of items for the larger population in India – give them a mill or environment to manufacture. Lot of them are small parts like plastic molded parts for mobile phones, easily manufacturable in India. Even among SMEs, minuscule and small units can produce things like candles, kites which are also listed there in the list of items on which duty has gone up. They are very minor items and I don’t think it will create such an impact in terms of prices which will burn a hole in anybody’s pocket. It may be a short-term pain, but it will lead to a long-term gain. All of us will love to see the boost in manufacturing in India and this move is to make India a manufacturing hub. So, this is all leading to it.
Watch the full interview here