Union Budget 2019 | Financial Express Online Survey: Even as the first term of the Narendra Modi government saw lowering of corporate tax, Modi 2.0 may not move in the same direction towards a desirable corporate tax rate of 25% across the board, said experts.
Union Budget 2019 | Financial Express Online Survey: Even as the first term of the Narendra Modi government saw lowering of corporate tax, Modi 2.0 may not move in the same direction towards a desirable corporate tax rate of 25% across the board, said experts. The Union Budget 2019 may not see such a move as the government lacks enough room to further cut tax rate in this fiscal, most economists and analysts surveyed by Financial Express Online said.
Will Budget 2019 show the path to moving towards 25 per cent corporate tax rate?
Financial Express Online reached out to leading experts and analysts to learn about the chances of corporate tax rate seeing a further cut this budget. While eight out of 15 experts said that corporate tax rate may not be cut in this budget, three of them believed it may happen. The remaining four respondents couldn’t say whether or not the government would move towards this rate cut.
It’s difficult to say if the government goes ahead with further tax rate cut since it has limited room to do so, according to DK Srivastava, Chief Policy Advisor, EY. “There is no immediate fiscal headroom to allow tax rate cuts immediately,” agreed Ranen Banerjee, Partner and Leader Public Finance and Economist, PwC. “This will be deferred to be covered under the DTC that is in the works,” Ranen Banerjee said.
The tax cut depends on room that the Modi government has in terms of revenue collections and the expenditure that would estimate to incur in the coming months, Vikas Vasal, National Leader – Tax, Grant Thornton in India, told Financial Express Online. “In any event over 98% of the companies are already covered under the 25% tax bracket. Further, there are talks about Direct Tax Code being introduced soon. Therefore, the government may cover the remaining companies under the New Direct Tax Code per se,” he added.
No room for cuts
Meanwhile, the need for fiscal and policy stimulus to the economy may tie the government’s hands from reducing corporate tax rates, Sanjeev Hota, Head of Research, Sharekhan said. There stands no chance for such a rate cut to happen, he added. Explaining why corporate tax rate cut seems too far-fetched this budget, Sandeep Raina, Associate Director, Edelweiss Professional Investor Research told Financial Express Online that since the government needs revenue, it may not have money afford cut in corporate tax rate as of now.
A corporate tax rate cut is much needed
Nevertheless, the government may indicate something for next year, an expert from a large NBFC said, requesting anonymity. The revenue constraints will make it difficult for the Modi government to come up with any such proposal in this budget, this expert said.
Cutting corporate tax rate is necessary for reviving growth, Bidisha Ganguly, Chief Economist, CII said. “It was a promise of the previous government which it needs to meet by at least indicating a path towards meeting it. In the current dual tax structure, smaller companies that enjoy the lower tax rate are discouraged to increase in size,” Bidisha Ganguly said.