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Pune: India Inc will not only have to learn to live without subsidies once the Direct Taxes Code comes into effect, but also pay the rightful tax to the government, according to revenue secretary PV Bhide. The secretary indicated that the proposed code would bring into the tax net 90% of corporate India that doesn’t pay any tax now. His comments come just as the finance ministry settles down to work out tax proposals in October, for the next budget due in February.
“The country has over 4.50 lakh registered corporate bodies, of which only 50,000 corporates pay taxes. A simplistic interpretation of this could mean that either these are inefficient corporates or there is income being concealed. Our endeavor is to reduce this,” Bhide said at a CII seminar here on Tuesday.
In Budget 2009-10 the finance ministry has plugged a major loophole in the tax treatment of companies by reworking the provisions of the minimum alternate tax. Government officials told India’s automobile manufacturing hub that even companies that do not make profits will have to pay at least 2% of their total asset value as tax. The levy promotes efficiency in the private sector, said the officials in response to criticism that it will thwart new investments.
Bhide said among the tax leakages he had noticed was the special purpose vehicles that companies sometimes set up with the deliberate intention to avoid tax. “These cannot be used as vehicles for concealment,” he said.
The draft tax code proposes to do away with tax sops for companies. It has suggested replacing the current profit-linked incentives with investment-linked incentive for specific sectors, including special economic zones, exploration and production of mineral oil & natural gas and cold chain facilities.
The loss of revenue from tax sops given to India Inc has for long been a bone of contention with the finance ministry. Tax incentives cost the exchequer Rs 68,914 crore revenue in 2008-09 and Rs 62,199 crore in 2007-08, according to the Budget document. More importantly, despite the 33.99% corporate income tax rate, the effective tax rate of companies in 2007-08 was a mere 22.24%.
While public sector companies paid corporate tax at an effective rate of 25.69%, private sector companies had it easier–their tax liability was 21.28%. Across sectors, sugar, power, pharma, and IT & BPO service providers pay the lowest tax in the range of 3% to 16%. The Budget document further reveals that...
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