The widening of the tax net due to demonetisation will give the Centre an opportunity to lower corporate tax rates, according to the Confederation of Indian Industry. The trade body, in a statement, added that the roll-out of the GST will also be facilitated due to the increasing formalisation of transactions. “With a larger share of the economy captured in the tax net, the government has greater space to lower corporate income tax rates,” Chandrajit Banerjee, Director General of CII said.
“In our recommendations for Budget 2017-18, CII has called for reducing the corporate income tax rate to 18 per cent, including all surcharges and cess, along with removal of all tax incentives and concessions.”
CII noted that there are 32 incentives applicable on corporate profits before calculating tax, which resulted in an effective tax rate of about 19.8 per cent.
Higher compliance
“Going by experience, it is found that a lower tax rate encourages higher compliance; hence, we believe that lowering the tax rate to 18 per cent and removing all tax exemptions will not negatively impact government revenues on this head,” he said.
“The 18 per cent rate will bring India in line with attractive international investment destinations such as Singapore and the U.K.”
“Less-cash use implies higher tracking of transactions, which feeds into better and more efficient implementation of GST,” he said.
Apart from reducing corporate tax rates, CII also recommended that the government boost its infrastructure investments, quicken disinvestment in public sector enterprises and encourage public-private partnerships.
National Innovation Fund
CII also recommended the government work towards the creation of better quality jobs in the formal sector, and a national technology strategy with a ten-fold increase in public investment in research in higher education institutions. “Public investment in research in the higher education sector is currently 0.04 per cent of GDP and this should be increased to the global average of 0.4 per cent.”
