According to Budget documents, in 2015-16, the effective rate of corporation tax was 28.24%, compared to 24.67% in 2014-15. While the government has promised to lower rates to 25% doing away with exemptions, the levy on large companies with a turnover of over Rs 500 crore was estimated at 25.9%, prompting the government to lower the levy to 25% on smaller companies in the last Budget.
CII president Shobana Kamineni said a lower rate of tax will encourage investment and create jobs, which were crucial for the economy. The chamber recommended that all cesses and surcharges as well as exemptions should be withdrawn to make the regime simpler.
Ficci went a step further and suggested that the government should consider acrossthe-board tax rate cuts for businesses and individuals in India to spur domestic investment and demand. "Many key global economies are opting for significant rate cuts, for instance, the US is on the verge of historic tax reform that proposes to cut the corporate tax rate from a top rate of 35% to 20% as well as provide relief to individuals. The US tax reform also envisages a complete exemption in respect of dividends declared by foreign subsidiaries of US companies. This is intended to incentivise repatriation of earnings to the US, which is expected to boost investment and consumption. Overall, it is expected that this reform proposal would spur economic growth and increase overall tax collections," the industry lobby group said.
Tax consultants argued that there is a strong reason for a reduction. "There is a clear case to reduce the headline rate of tax in India. There are several imperatives to this. First, the government has itself laid down a four-year road map towards a 25% rate. Second, with incentives and exemptions mostly phased out, there is a clear case to reduce the headline rate. Additionally, with global developments, there will be added pressure" said Abhishek Goenka, who leads the direct tax practice and consulting firm PricewaterhouseCoopers.