FM may cut corporate tax to cheer up industry

New Delhi, February 8: | Updated: Feb 9 2002, 05:30am hrs
Finance minister Yashwant Sinha is likely to include the proposal of reducing corporate tax rate from 35 per cent to 30 per cent when he starts giving final touches to the Budget proposals for 2002-03 in a few days time.

The measure is expected to be a part of a revival package for the industry.

Scrapping of the minimum alternate tax (MAT) altogether or facility for tax credit, and restoration of investment allowance are also among the measures which may find a place in the next Budget.

According to sources, corporate tax rate had to ultimately go down to 30 per cent as the maximum marginal rate for personal income tax had already been reduced to that level and prudent taxation structure should have both the rates at the same level.

The Planning Commission advisory group on tax policy and tax administration for the Tenth Plan has also sought this parity arguing that if the corporate tax rate is higher than the maximum marginal rate of personal income tax, it tends to lead to tax induced non-corporatisation of the business sector and less organised business activity.

Subsequently, the panel has also asked for a reduction in the corporate tax rate for foreign companies, 48 per cent at present, to the level of domestic companies.

Revenue department sources said that though the move was under consideration, a final decision will depend on the capacity of the Budget to accommodate for the revenue loss on account of this move at a time when tax collection was witnessing a poor run.

Corporate tax realisation at the end of the third quarter in the current financial year declined by 4.17 per cent to Rs 22,776.41 crore from Rs 23,768.11 crore collected in the same period last year.

Confederation of Indian Industry (CII), however, has pointed out in its pre-budget memorandum that the phasing out of exemptions and deductions provides scope for reduction in corporate tax rate.

Sources said that the proposed removal of deductions and exemptions, or their reduction to a bare essential level, would pave the way for scrapping of MAT.

However, as it was difficult to do away with all the exemptions and deductions at one go, the government may favour a tax credit facility on MAT, they added.

According to them, the necessity of raising the industry sentiments may ultimately prevail upon the government in taking a decision on reducingcorporate tax rate and providing other benefits to the industry including the revival of investment allowance.