Will Arun Jaitley keep his promise of corporate tax rate cut in Budget 2018?

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Updated: January 19, 2018 5:56:06 PM

"I, therefore, propose to reduce the rate of Corporate Tax from 30% to 25% over the next 4 years," said Finance Minister Arun Jaitley while presenting the first full Budget of the present NDA government on February 28, 2015. Will he keep his promise of reducing the corporate tax rate in the Budget 2018?

Will Arun Jaitley keep his promise of corporate tax rate cut in Budget 2018? (Image: Reuters)

“I, therefore, propose to reduce the rate of Corporate Tax from 30% to 25% over the next 4 years,” said Finance Minister Arun Jaitley while presenting the first full Budget of the present NDA government on February 28, 2015. His idea behind this proposal was that higher tax rate made domestic industry uncompetitive and too many exemptions led to pressure groups, litigation and loss of revenue. Before the 2018 Budget, which is the fourth and the last full Budget of the present government, the pressure to act on what was promised in 2015 is mounting — especially after the United States passing the law to cut corporate tax from 35% to just 21%.

The government did cut it to 29% for those companies which reported total turnover up to Rs 5 crore in FY15 and to 25% for newly incorporated domestic firms in the 2016 Budget. In the next Budget, the government relaxed tax rates for MSMEs and start-ups in the 2017 Budget but the initial plan of going from 30% to 25% is yet to be done.

Corporate India has already put forth this demand in front of Arun Jaitley during the pre-budget consultation meeting. Besides, top banker Uday Kotak, too, has backed this demand, saying it is needed to boost animal spirits of the businesses and for government to boost their income. “I am a believer that as you reduce rates, income goes up for the government, and therefore, reduction in corporate tax is a little boost to animal spirits,” Uday Kotak said in an interview with CNBC-TV18.

Despite the call for the corporate tax cut, Arun Jaitley dropped hints recently that bank recapitalisation, infrastructure and housing will be among his top priorities for the next year. The government has already announced massive Rs 2.11 lakh bank recapitalisation plan, of which 76,000 crore will come from budgetary allocations and market raising.

Some experts are even suggesting that due to the Gujarat victory, only by a narrow margin, and the poll-bound 2018 and 2019 may lead to a populist Budget. “Any tough reforms may not go well with the popular sentiment and thus, India Inc’s expectations on this front should be muted,” Assocham said. “In the run-up to the 2019 Lok Sabha elections, it would be the popular voters’ sentiment that would be factored by the Centre and the state governments in their policies.”

Moreover, the government last month formed a task force for the overhaul of the Income Tax Law, 1961 according to India’s economic needs and international best practices. But the task force has been given six months time to submit its report, which will end in May 2018. Task force member Mukesh Patel recently told FE Online that simplification of income tax filing would be a priority, while bringing down (direct tax) rates may take a while.

 

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