Proposed DTC to give relief to corporate tax payers

Proposed DTC to give relief to corporate tax payers

The current tax rate for domestic companies, including surcharge and cesses, comes to about 33.22 per cent, while foreign companies pay over 40 per cent. The bill sought to levy the same corporate tax rate on domestic and foreign companies.

Tax experts said the proposal in the Direct Taxes Code (DTC) Bill tabled in the Lok Sabha today will provide much- needed relief to the industry and bring the levy on par with global standards. However, they wanted the corporate tax rate to be even lower at 25 per cent, as was proposed in the first draft of the Direct Tax Code Bill.

"The DTC Bill proposes to bring the taxability of Indian corporates at par with global standards. Indian is now going down towards a low-tax country," Deloitte Tax Partner Sunil Shah said. He said the government will gradually bring down the corporate tax rate to 25 per cent, as it needs some time to bridge the transition from a high-tax country to a low-tax one.

However, FICCI Taxation Advisor S B Gupta said, "The tax burden of corporates would come down. It would have been better if it was 25 per cent." Referring to the 30 per cent corporate tax, L&T CMD A M Naik said it was a small payback for a lot of things which did not happen.

"We needed a lot of support for more investment in terms of higher depreciation (rate) and development concessions and so on," he said. In addition, the DTC also proposed to increase the minimum alternate tax (MAT) rate to 20 per cent of book profit from the current 18 per cent. However, under the current Income Tax Act, adding up the surcharge and cess would take the current MAT to 19.93 per cent.

"The government has removed the concept of gross asset tax and has rounded off the MAT rate to 20 per cent to factor in surcharge and cess," Ernst & Young Tax Partner Vishal Malhotra said.

KPMG Deputy CEO and Chairman Tax Dinesh Kanabar said, "The Bill wants to do away with cess and surcharge, which is overall good for corporates, be it in calculation of MAT or corporate tax."

MAT is a levy imposed on profit-earning companies that do not fall under the tax net due to various exemptions. However, some experts said the increase in MAT will act as a dampener for corporates.

KPMG Executive Director Vikas Vasal said, "While the 30 per cent corporate tax is good keeping in mind that the government has to maintain its revenue collection, the MAT rate at 20 per cent is a kind of dampener, as the difference between the corporate tax and MAT is now getting narrower."

In the original draft of the DTC, the government had proposed to levy MAT on gross assets, which had evoked much criticism from companies. As such, the second draft of DTC switched back to levying MAT on book profits.

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