Reduction in corporate tax rate will end exmptions, boost revenues: Nomura

MUMBAI: The government’s proposal to reduce the corporate tax rate to 25% from 30% in the next three years will lower taxes, simplify tax structure and end exemptions which could actually boost revenues Japanese brokerage Nomura said in a note on Tuesday.

In a report on India’s proposed new corporate taxes, Nomura economists Sonal Varma and Neha Saraf pointed out that though India’s current corporate tax rate is 30% the effective tax rate at 23.2%b is much lower mainly due to various tax exemptions that companies enjoy.

“The effective tax rate is slightly higher for services (24.37%) than for manufacturing companies (21.96%). Thus, over the course of the next four years, as the government lowers the corporate tax rate (to 25% from 30%), but simultaneously removes the exemptions, the effective tax rate is due to rise to 25%, which should boost corporate tax collection when fully implemented (FY18),” Varma and Saraf said.

Finance minister Arun Jaitley has proposed lowering of the corporate tax rate to 25% from 30% over the next four years in its budget speech in February. The Central Board of Direct Taxes (CBDT) has invited suggestions on proposals which want to do way with all corporate exemptions by April 1 2017.

The estimated revenue foregone as a result of exemptions in the last fiscal year was Rs 62,400 crore or 0.50% of India’s GDP according to the finance ministry.