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बेसिक इंग्लिश का दूसरा सत्र (कक्षा प्रारंभ : 22 अक्तूबर, शाम 3:30 से 5:30)
Q. low tax rates and few exemptions: Discuss why there is a need to cut down that corporation tax and scrapping concessions.
Dec 22, 2016 Related to : GS Paper-3

Ans :

Introduction-

Recently industry lobby Confederation of Indian Industry has submitted a memorandum to Government, in which it is requested that corporate tax rate must be cut down from 30% to 18% and also requested to scrap all tax breaks. The objective of memorandum is a steep cut in the nominal rate and removing all sorts of tax-planning opportunities. This would be more transparent and equitable in relation to smaller companies.

Issue-

  • India’s corporate tax rate is pegged at 30% and by including cess and surcharge it will become 34.6%. This rate is very much high, on an average top corporate tax rate is 22.9%.
  • In India, too, the effective tax rate is a little over 20% due to various exemptions, and that, too, only because the minimum alternate tax (MAT) puts a floor of 18%.
  • But Indian tax laws have many exemptions, hence larger company with a decent tax planner uses various concessions/exemptions and pays much less than pay than the smaller companies. 

How?

  • Big companies can afford expensive tax planners, which is out of reach for small companies. 
  • Bigger entities can house profit centres across the globe, including in tax havens, so as to move revenues around to minimise tax outgo. Companies with little or no global exposure cannot do this.

Solution-

  • Government must scrap unnecessary exemptions and concessions, it will helps in creating level playing field among both big and small companies. 
  • A flat rate of 18% corporation tax without exemptions will put all businesses, whatever their size, on the same level. 

Conclusion-

The goods and services tax will widen the tax base for corporate tax, as more and more companies come into the indirect tax net and declare their true extent of production. Scrapping the exemptions will also cut down mis-invoicing of revenue and earnings. Cutting down tax rate will also increases the tax base. Hence government should aim at simpler tax laws which will reduces the cost of compliance. 


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