Budget 2020 India: In a circular, which has few precedents, the ministry also asked India Inc to take into consideration the recent corporate tax cuts while making the suggestions.
Union Budget 2020-21: Having commenced the Budget-making process, the finance ministry has sought suggestions from the industry and trade associations “for changes in the duty structure, rates and broadening of tax base on both direct and indirect taxes, giving economic justification for the same.” In a circular, which has few precedents, the ministry also asked India Inc to take into consideration the recent corporate tax cuts while making the suggestions.
“The government policy with reference to direct taxes in the medium term is to phase out tax incentives, deductions, and exemptions while simultaneously rationalising the rates of tax. It would be also desirable that while forwarding the suggestions/recommendations, positive externalities arising out of the said recommendations and their quantification are also indicated,” the ministry said in the circular dated November 11.
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After her maiden Budget on July 5, finance minister Nirmala Sitharaman on September 20 announced a cut in corporate income taxes for domestic companies to 22% from 30% previously. This would bring effective corporate tax rate, including all additional levies, to about 25.2%, for companies which are not receiving any incentives or exemptions. New manufacturing companies formed after October 1 will enjoy a 15% (effective rate of 17%) corporate income tax rate, against 25% previously. The tax cuts are estimated to result in Rs 1.45 lakh crore loss in terms of gross tax revenue for the government during 2019-20.
Subsequent to this, there have been demands for a reduction in income tax rates for individuals as well so as to put more money in the hands of the common man for a consumption-led revival of the economy.
India’s economic growth had slipped to a six-year low of 5% in the April-June quarter and the revival may take a few quarters despite announcements to boost real estate and financial sectors.
As reported by FE earlier, the government is also staring at the highest ever shortfall of about Rs 2.5 lakh crore (15%) in its net tax revenue from the budgeted level this year and a decline of 2 percentage points or thereabouts in nominal GDP, which will likely be an additional pressure point in its fiscal management.
Finance minister Nirmala Sitharaman, who had to announce additional measures to stimulate a slowing economy within a month of her maiden budget being approved by Parliament, is due to present the annual budget for the financial year 2020-21 on February 1.
“Your suggestions and views may be supplemented and justified by relevant statistical information about the production, prices, revenue implication of the changes suggested and any other information to support your proposal,” the ministry added.
The ministry also sought suggestions related to customs and central excise among indirect taxes as goods and services tax is under the ambit of the GST Council. “The request for correction of inverted duty structure, if any for a commodity, should necessarily be supported by value addition at each stage of manufacturing of the commodity. It would not be feasible to examine suggestions that are either not clearly explained or which are not supported by adequate justification/statistics,” it said.
(With PTI inputs)