When at the post-Budget interaction conducted by industries’ body FICCI Finance Minister Arun Jaitley was reminded of his four-year-old promise of reducing the corporate tax rate from 30% to 25% for all companies, he defended his decision by saying that he had promised the cut alongside the phasing out of exemptions — and with current exemptions — companies are paying an average of 22-23% of corporate tax.
“We were conscious of the global competitive environment, but I had categorically said that it would be done with phasing out of exemptions. This country, having gone through the Vodafone experience, we should allow exemptions to die their natural death and not pre-empt sunset clauses,” Arun Jaitley said.
Vodafone is locked in twin tax disputes with the government, and has challenged the demand of Rs 20,000 crore tax at an international arbitration tribunal. The tax dispute pertains to its 2007 acquisition and the transfer pricing case involving Vodafone India Services on account of a law enacted under the Finance Act 2012 to retrospectively tax any gain on transfer of shares in a non-Indian company.
“Since I had to walk the talk, 7,000 companies which are left out, in fact, are paying an average of 22-23%,” Arun Jaitley said, adding that once the exemptions are phased out, the potential can further increase. In the Budget 2018, the finance minister cut the corporate tax rate for companies with an annual turnover of up to Rs 250 crore to 25%. In his first full Budget in 2015, Arun Jaitley, had proposed “reducing the rate of Corporate Tax from 30% to 25% over the next 4 years”.
Industry players had hoped that this year, in the last full Budget of the government ahead of the General Elections, Arun Jaitley will cut the corporate tax cut as promised. The tax rate cut by the United States from 35% to 21% was also touted to be building pressure on the government to reduce rates to make the Indian companies more competitive, however, the corporate tax rate cut was announced to benefit the SMEs and not big corporate houses.