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Daily Current Affairs – 2020

Topic: For Prelims and Mains

Lowering of Corporate Tax

Why in News?

The case for a uniform tax rate of 15 per cent in India will minimize tax litigation that arises due to numerous interpretations of exemptions and deductions in tax legislation.

Tax rates in India:

  • High rate of corporate tax : The high rate of corporate tax has been a major factor in affecting India’s ability to attract foreign investment for a long span of time.
  • India had a 30 per cent rate of tax on domestic companies, including surcharge and cess, the total tax incidence is 34.9 per cent in the year 2018-19 making the country an exception.

Tax rates of other countries : Corporate tax rate in other countries is much lower than India. For example, the US (21 per cent), the OECD average (21.4 per cent), China (25 per cent), Vietnam (20 per cent), Thailand (20 per cent), Singapore (17 per cent), etc.

 Cumbersome tax laws: Indian tax laws have exemptions and incentives that can help in reducing the tax liability in abundance but it is not sufficient enough to match the low tax rates of other countries.  Further, any prospective investor gets skeptical because of the exemptions and incentives that make the Indian laws cumbersome.

Cost of taxation firms: An investor can’t even think of running an enterprise in India without taking the services of a taxation firm for which they have to pay a hefty amount. All this gives rise to nepotism and corruption, and hampers ease of doing business because of the bureaucratic discretion.

Present Government’s  initiatives on corporate tax rates:

  • Then-finance minister Arun Jaitley had announced a roadmap for a phased reduction in the corporate tax over a period of five years to 25 per cent, accompanied by elimination of exemptions and incentives in the union budget of 2015-16.
  • The start-ups/ new enterprises and firms having an annual turnover of less than Rs 400 crore were the only ones who got the 25 per cent rate. Including surcharge and cess, the total tax was 29.15 per cent.
  • Finance minister Nirmala Sitharaman introduced a reduction of tax rates for new entities in the manufacturing sector from the existing 25 per cent to 15 per cent with no exemptions and deductions. Thus, the total tax incidence works out to be 17.1 per cent including the surcharge and cess.
  • The existing companies’ tax rates were reduced from 30 per cent to 22 per cent but these are not the final exemptions and deductions that the companies would be mandated to.
  • It’s the companies’ choice whether to opt for 22 per cent or stay on with the existing dispensation, i.e. 30 per cent plus exemptions/deductions.
  • The tax rate is higher than most countries except for China where the tax rate is 25 percent.

Way forward:

  • The cumbersome regime won’t go away just by giving the companies the options to choose from. The government can, thus do the following:
  • Erase exemptions and deductions from the rule book but this may not be practical.
  • Give the option of 15% tax sans exemptions/deductions to all the existing companies.

This will make India unambiguously the most attractive destination for foreign investors and will give a big boost to the GDP, increase in exports, better compliance, reduce litigation, and enhance recoveries.

Facts for Prelims

 Nag River

The Bombay High Court has recently said that Industrialization has reduced Nag River to a cursed lady.

  • The Nag River is a river flowing through the city of Nagpur in Maharashtra, India.
  • It is known for providing the etymology for the name Nagpur.
  • Forming a part of the Kanhan-Pench river system, the Nag River originates in Lava hills near wadi.

 

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