INDIA ANNOUNCES ROADMAP FOR CORPORATE TAX REDUCTION
INDIA ANNOUNCES ROADMAP FOR CORPORATE TAX REDUCTION. The Central government has recently come up with a comprehensive road map to do away with corporate tax exemptions over the next two years and further reduce the tax rate to 25 per cent from 30 per cent, bringing it closer to the global levels. Through this, the government seeks to simplify the tax laws, which would bring transparency and clarity, and improve India’s competitiveness internationally.
However, in the short run, this move would hurt companies that have been benefiting from these exemptions over the years. It is also likely to discourage investments in research and development in the special economic zones and will have a negative impact on other sectors such as information technology and infrastructure.
Experts, as per the media reports, were of the opinion that tax deduction and exemption have been prone to litigation and misuse though doing away with these is likely to increase the tax burden on some companies with an adverse impact on capital investments. NATIONAL PENSION SCHEME
Mr Arun Jaitley, India’s finance minister, in this year’s budget speech, said that the government would be reducing the corporate tax rate from 30 per cent to 25 per cent over the next four years. This would accompany a corresponding phase-out of tax exemptions and deductions, which would bring further clarity to the tax regime, he said.
In the media reports, the Income-tax department has said that exemptions are being phased out based on three pivotal principles. The profit-linked, investment-linked and area-based deductions would be phased out for both corporate and non-corporate taxpayers. Further, provisions having a sunset date would not be modified to advance the sunset date and, in the case of tax incentives having no termination date, a sunset date of March 31, 2017, shall be provided for either the commencement of the activity or for claim of benefit depending upon the relevant provisions of the Income Tax Act. INDIA ANNOUNCES ROADMAP
No weighted deduction shall be allowed from April 1, 2017. These deductions allow the taxpayer to claim a deduction that is beyond the actual expenditure incurred. Units such as warehousing facilities for storage of agricultural produce, cold chain units, affordable housing projects and fertilizer units are some of the areas that allow a weighted deduction of 150 per cent of capital expenditure now.
The government has sought the feedback of various stakeholders on the roadmap and it seeks to introduce these changes from the next budget onwards.
According to the foregone revenue statement of the last budget the cost of incentives given to the corporate sector, such as tax holidays, has gone up to Rs 62,400 crore in the current fiscal. This amount was Rs 57, 800 crores the year before. At present, tax holidays are given to sectors such as power generation, distribution and transmission, telecom and special economic zones. Tax holidays are also given to units set up an operation in the Northeastern states and in Jammu and Kashmir and Himachal Pradesh.
The draft roadmap seeks to reduce the highest rate of depreciation for assets available under Income Tax Act, 1961, from 100 per cent to 60 per cent available to certain assets now. This is proposed to be effective from April 1, 2017, onwards and shall be applied to all old and new assets in that particular asset category.
The proposed draft implies that infrastructural projects, special economic zones and natural gas exploration would not get any tax benefits from April 2017 onwards. It seeks to do away with tax benefits to donors of non-governmental organizations and incentives provided to companies involved in research and development in India. At present, companies get 200 per cent deduction on expenditure incurred on research and development.