Budget 2019: No room for big corporate tax cut; effective rate for large companies already less than 25%

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Updated: January 23, 2019 12:40:04 PM

The demand for FM Jaitley to cut the corporate tax rate for large companies has no empirical basis as more than 300 top companies of the country already enjoy effective tax rate of less than 24%.

According to an assessment carried out by the ministry of finance, the effective tax rate for these 335 companies was just 23.94%, around 3% less than the effective tax for all the companies in the assessment year 2017-18 and 7% lower than the applicable statutory tax rate of 30.90%.

Budget 2019: The clamour for lower corporate tax rate is growing louder as the date of presentation of Interim Budget by Finance Minister Arun Jaitley draws near. There is a demand from industry bodies like CII and FICCI to extend the relaxation given to smaller companies with a turnover of less than Rs 250 crore to all companies, but government data shows that effective corporate tax rate for big companies is less than that for smaller companies.

As per the information given in the last year’s budget, there are over 6 lakh companies in the country that had filed their returns electronically by 30th November 2017 for the assessment year 2017-18. It was almost 90% of the total return to be filed that year. The effective tax rate for all companies was 26.89% against the applicable tax rate of 30.90%. But a minuscule percentage, 0.05% or just 335 companies, had declared an average Profit Before Tax (PBT) of over Rs 500 crore that year. According to an assessment carried out by the ministry of finance, the effective tax rate for these 335 companies was just 23.94%, around 3% less than the effective tax for all the companies in the assessment year 2017-18 and 7% lower than the applicable statutory tax rate of 30.90%.

This effective tax rate of less than 24% for top 335 companies for AY 2017-18 was also lower by more than 1% than the corporate tax rate of 25% demanded by the industry lobby groups for all companies, including big ones. According to last year’s budget papers, over 54% or 3.3 lakh companies of total 6.08 lakh companies had declared a cumulative profit before tax (PBT) of over 14.76 lakh crore for AY 2017-18 and a taxable income of around Rs. 10.11 lakh crore.<

And 42.74 per cent or over 2.6 lakh companies had reported a cumulative loss of over Rs. 6.34 lakh crore and around 3% or 17,912 companies reported nil profit that year.

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