Retrospective tax: A thing of past

Retrospective tax: A thing of past

The second Budget to be presented by the new government is keenly awaited by business entities as it is generally seen to bring ‘Achhe Din’ from the tax perspective.

It is notable that the Prime Minister himself, as part of his ‘ease of doing business’ framework, has emphasised on bringing in more clarity in tax laws and administration. Recently, the Prime Minister in one of his addresses has specifically mentioned ‘Retrospective tax is thing of the past’.

Composite tax rates

The multiplicity of tax rates makes the present tax structure extremely complicated for both, Indian companies and foreign companies.

As such, to make the tax paradigm more transparent in terms of decision making and bringing about ease of doing business, it is advisable that a composite income tax rate be introduced for corporates, say at 30-34 per cent based on their income, without any separate levy of surcharge/cess. Any cess or surcharge out of the corporate tax rate can be a matter of internal allocation out of the total tax collection.

Rationalise MAT & DDT 

The rate of MAT (minimum alternate tax) levy has been considerably increased over the years from 7.5 to 18.5 per cent. With surcharge and education cess, the effective rate of MAT comes to 21.34 per cent. The levy of MAT at such high rates (i.e. about two-thirds of the corporate rate of taxation) negates tax incentives and exemption.

As the Finance Minister had in the previous Budget announced the reduction of corporate tax rate to 25 per cent over a period of four years, it is expected that corresponding MAT rate be reduced and brought down to 50 per cent of the corporate tax rate to provide some relief to the corporate tax payers. On similar lines, the current rate of DDT (dividend distribution tax), which is also just shy of two-thirds of the corporate tax rate should be rationalised and reduced to 50 per cent of the corporate tax rate.

(The writer is the founder of RSM Astute Consulting)

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