Govt says personal I-T base must be up before corporate tax cut

In a stern reply to big firms crying hoarse for no reduction in corporation tax in the Budget, the government on Saturday said an increase in personal income tax collection was a must to reduce tax on large companies.

“The existing large corporates are asking why their tax rate has not come down. What you have to understand is that the cost of 1% reduction in corporate tax rate costs the government anywhere between Rs 18,000 crore and Rs 19,000 crore. That is a lot of money. We need to first expand the personal tax base to be able to provide that kind of relief,” Revenue Secretary Hasmukh Adhia said in an interaction with industry body Ficci.

He said the most challenging task for the government was to increase the share of personal income tax in GDP, which at present was abysmally low at 2%. Also, the profile of personal income tax did not match with the consumption profile of the country, Adhia said.

Finance Minister Arun Jaitley in the Budget for 2015-16 had announced that he would look at reducing corporation tax from the current 30% to 25% in the next four years. But along with that he had also announced that certain exemptions that the big companies enjoyed would be phased out.

To a query on why he did not reduce corporation tax in this year’s Budget, he said, “I had linked it (reduction in corporation tax) to phasing out of exemptions. Should I phase out exemptions ahead of time when companies are not in their good health?”.

Instead of reducing corporation tax in general, the government gave a steep 5% cut in corporation  tax to 25% for companies with an annual revenue of up to Rs 50 crore.
DH News Service