Budget 2018: The countdown to the last full Budget of the present government has begun. Finance Minister Arun Jaitley will present the Union Budget on February 1 keeping the tradition which began last year to ensure that proposals made in the Budget are effective from April 1. While experts are pegging that the Budget is going to be focused on rural population, corporate India is also continuously putting forward its demand of lower corporate tax rate, which was promised by Arun Jaitley in his first full year Budget.
In the pre-Budget memorandum, both FICCI and the PHD Chamber of Commerce and Industry asked the government to reduce corporate tax from present 30% to 25% to boost private investments, which remained largely muted in the fiscal year 2017-18.
“Businesses today are faced with high tax cost leading to increased cost of production and resultant lower surplus for reinvestment and expansion. The basic corporate tax rate of 30 percent coupled with a dividend distribution tax rate of 20% makes the effective tax cost for an Indian company too high,” FICCI said. While PHDCCI said that the reduction in corporate tax rate should be made “inclusive of all surcharges”.
For new businesses/companies:
FICCI suggested that the reduced tax rate of 25% should be extended to companies who have started businesses either during the financial year 2016-17 or 2017-18 and if their total turnover/gross receipts in the first year of operation do not exceed Rs 50 crores. It also suggested that the government should clarify and extend the benefit of the reduced tax rate of 25% to those entities that existed as firms during the financial year 2015-16 and
subsequently converted into companies.
Minimum Alternate Tax (MAT)
“The purpose behind the introduction of MAT was to bring all zero tax companies within the tax net and to neutralize the impact of certain excessive benefits/incentives. MAT had started at around 7.5% in 2000. the present MAT rate of 18.5%, which comes to around 20% including surcharge, cess, etc. seems very high as compared to the expected reduced corporate tax rate of 25% coupled with the planned phase out of exemptions,” PHDCCI said.
FICCI said that for businesses, especially the smaller ones, to have relief truly meaningful, MAT should be reduced or reviewed.
Carry forward of MAT credit:
Both FICCI and PHDCCI suggested some changes to the government in respect of Minimum Alternate Tax (MAT) paid by companies under Section 115JB. Currently, the MAT credit is not allowed to be carried forward beyond ten Assessment Years. However, under the 115JB of the Act, MAT can be carried forward up to the fifteenth assessment year immediately succeeding the AY in which such tax credit becomes allowable. This amendment is proposed to be effective from April 1, 2018.
PHDCCI said that the ‘carry forward’ proposal needed to be addressed so that taxpayers’ whose MAT credit carryforward period has lapsed should not be at a disadvantage and suffer from the transitional impact of the proposed amendment. It further said that the benefit of extended MAT credit period should be available to the AYs 2015-16, 2016-17 and 2017-18 also.
Dividend Distribution Tax:
The scope of the exclusion provision for avoiding double taxation on cascading effect of Dividend Distribution Tax is very restrictive. It applies only to the dividend received by holding company from its subsidiary company. Double taxation of DDT continues in all other situations of inter-corporate receipt and distribution of dividends, PHDCCI said adding, specific provisions be incorporated in the Income Tax Act to provide relief to the shareholders of the amalgamating foreign company. FICCI also said that the DDT may be reduced suitably so as to be competitive in terms of the comprehensive tax burden.