Two years after it announced plans to reduce corporate tax rate to 25 per cent, the government on Saturday said any such reduction can come after the spread of personal income tax is increased and more people pay taxes.
A 1 per cent cut in corporate income tax rate from the current 30 per cent will cost Rs 18,000-19,000 crore in revenues, Revenue Secretary Hasmukh Adhia said.
Finance Minister Arun Jaitley, in his second Budget in February 2015, had announced reduction of the corporate tax rate to 25 per cent from 30 per cent in a phased manner over the next four years starting 2015-16, accompanied by fewer exemptions.
“A lot of issues have been raised that our corporate income tax rate is not globally competitive. Particularly, we are comparing ourselves with China, not with the US. The US is 40 per cent, but we don’t do that. In comparison to China, it is said we should reduce it to 25 per cent,” Mr. Adhia said at a FICCI event here.
“We said we would love to do it for everyone. But we have the constraint of budget.”
The challenge, he said, is getting the resources.
“Unless we increase our spread of personal income tax, unless we have more people coming forward and filing the exact detail of income, it’s a challenge for us. That’s what we are trying to do,” Adhia said.
The “most challenging” is to increase the share of the personal income tax (PIT) in the total kitty.
“It is abysmally low. If you take the share of GDP, it is only coming to 2 per cent. This would probably be the lowest in the world. 2 per cent of GDP coming from PIT is very very surprising,” Adhia said.
The profile of PIT payments does not match with the consumption profile, he noted.
“How is it possible that out of only 76 lakh people showing income of more than Rs 5 lakh in the country, 56 lakh are salaried people? We need to do something about it and it’s a big challenge for us,” the secretary pointed out.
To attract companies to set up new manufacturing units, last year’s Budget has reduced tax rate for such companies to 25 per cent.
“For future, we have already decided that way last Budget. In the case of existing companies which are already making profits, (the point is) whether the government should give them some benefit. We would love to give them, but the question is about resources,” Mr. Adhia maintained.
