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Budget 2017: Will Jaitley deliver on corporate tax cut promise on Feb 1?

Budget 2017 is likely to be different in many ways. Not only has the date of Budget speech been advanced to February 1 from February 28 but it would also be cast by the shadows of demonetization, delay in goods and services tax (GST) implementation, Brexit, and the election of Donald Trump as the US President.

All these may compel finance minister Arun Jaitley to come out with drastic and bold tax initiatives or rate structures to keep India in the global “bright spot” and spur domestic growth post demonetization.

Corporates have fixed their eyesight on Jaitley’s promise in Budget 2015 of a reduction of five percentage points in corporate income tax (CIT) to 25% from the current 30% in four years along with a phased pull-back of exemptions and deductions.

Two years back, the finance minister had said in his Budget speech, “The basic rate of corporate tax in India at 30% is higher than the rates prevalent in the other major Asian economies, making our domestic industry uncompetitive. Moreover, the effective collection of corporate tax is about 23%… I, therefore, propose to reduce the rate of corporate tax from 30% to 25% over the next 4 years”.

Last year, Jaitley had left the corporate tax untouched but had delivered on removing some exemptions and coming out with a sunset date for some.

D K Srivastava, chief economic advisor, EY India, said there was immense pressure on the finance ministry to slash CIT as western countries, particularly the US and the UK, may cut taxes being levied on corporate houses after Trump and Brexit.

“In which case, emerging economies have limited option in continuing with the present rate of CIT. They might also have to do it (to stay competitive),” he said.

He is, however, also expecting “rationalisation and modification” of exemptions and deductions so that the government does not lose out on revenues in a big way.

Most experts are expecting a snip of around 1%-2% in CIT in this year’s Budget. That could bring it down to around 28%. Last-minute delay in GST execution, which was to be rolled out by April 1 , could also see indirect taxes like service tax, central excise duty, customs, etc, being tinkered with to align them with the GST rate structure.

M S Mani, senior director (indirect taxes) of Deloitte Haskins & Sells LLP, said a stalemate in the GST implementation could push Jaitley to alter indirect tax rates of some of the products and services. “Now that GST seems to be in a bit of a problem, we could see quite a few indirect tax changes also in the Union Budget,” he said.

Source: dnaindia.com