Budget 2015: Corporate tax cuts in sync with exemptions lifted, says Revenue Secretary Shaktikanta Das

The February 28 budget made clear that the government is intensifying the crackdown on black money but the shift to a less aggressive tax regime will continue. The proposed lowering of corporate tax in four years starting in FY17 to 25% from 30% will spur investment, revenue secretary Shaktikanta Das told ET in an interview. Excerpts:

Will the corporate tax cut be spread evenly over four years?

The reduction has to move in tandem with the elimination of exemptions. It will also depend on the quantum. How much revenue are we losing by cutting the tax rate and how much are we gaining by eliminating exemptions. Yes, it should be on a largely equal (basis)—four years, it works out to 1.25% each year. It could be 1% first year, 1.5% year after that. That will also depend on what kind of buoyancy we get from GST (goods and services tax). Each percentage (point) cut means a loss of Rs 18,000-20,000 crore. This is not taking into account the exemptions because some of the exemptions will have to be grandfathered. When we make a beginning it will be a reasonably decent beginning. It will not be that we will start with just some 0.5%. Our tax rates are highest among neighbouring countries.

Today, a domestic investor or a foreign investor has the choice of investing in India, China, Indonesia, Malaysia. Our tax rates are 30% while in these countries they are 25% or less. Our environment has to be competitive. You become competitive by providing ease of doing business, by making opening activities hassle free, which the government is trying to do by improving ease of doing business, and we have also done a lot by way of tax simplification. The other way is to make our tax rates more competitive.

Have you identified the exemptions to be phased out?

Some exercise has been done. It will be spelt out during the course of the year — what kind of exemptions will be eliminated and when.

The move to cut corporate tax without increasing exemption for individuals is being seen as solely pro business

This whole idea that you are benefitting corporates is flawed. The profit remains in the company. The company is a legal person. If the promoter wants to take out this extra profit by way of higher salary or higher dividends so be it. It will be taxed. The intention is that we want to make our tax regime competitive and we want to ensure more money remains in the hands of the companies so that they are in a position to invest. It should be seen as an encouragement to domestic corporates to invest more.

There is a strong action against black money stashed abroad. What about domestic black money?

Domestic laws are fairly effective and also we will introduce the benami property transaction bill, which will ensure that when somebody purchases a property in the name of his driver or someone who works in his home… the property will be seized and confiscated. Then we have done things that any transaction of more than Rs 1 lakh you have to mention the PAN. Also, in case of property transactions, advance cannot exceed Rs 20,000.

When tax officials raid and discover cash, people explain it as advance taken from many people for selling a property. This plugs that loophole. However, let me say clearly that it’s not our intention to create a scare or an atmosphere of fear. Any legitimate business will not be affected. Our whole approach of non-adversarial tax regime will continue. The tax department will continue to be friendly and there will not be any arbitrary exercise of power. There will be suitable internal safeguards and controls will be provided to prevent and misuse or arbitrary exercise of power by our officials.

How soon will the new law on overseas black money be in place?

It will be introduced in the current session of Parliament. Our effort is to pass it in this session of parliament. It will get implemented as soon as it is passed. The window to come clean will be clearly provided. It will be sometime after the finance bill is passed. Once the bill is passed the notification will be issued.

Will the new law apply in the HSBC or LGT cases?

That is matter of detail. You will know about it when the bill is tabled.

Has the retrospective tax issue been settled for good?

Retrospectivity is a dead issue because in the last budget speech (in July 2014), FM (finance minister Arun Jaitley) said very clearly that the government will not take any step that creates fresh liability. This year also he has reiterated it. Other than those 37-38 cases arising out of the retrospective amendment of 2012 on indirect transfers there is no retrospectivity. Investors have no reason to worry at all. In the case of indirect transfers, we have set up a high-level committee, but that is only an administrative arrangement to see whether a case (is) made out. Under the law, if there is a case made out, naturally the law will apply. If some transaction has already taken place which is attracted by this section we will take action. What we are saying there will not be any new retrospective legislation. Other thing we have done is we have completely cleaned up that entire Section 9(1) dealing with indirect transfers in the income tax act. Also there are no between-the-lines surprises in the finance bill.

GAAR (general anti-avoidance rule) has been deferred by two years. Are you also going to revisit the entire framework again?

Not revisit the whole architecture but there are some concerns expressed by industry and taxpayers--only those will be looked into. What (kind of) GAAR is coming is already in the public domain. On that we have got a number of representations, which we will examine. If someone comes with a new consultation, we will look at that as well. The bigger decision in relation to GAAR is not just the date, the postponement by two years, but the retrospective element has also been cut out. The law as it stands today, it takes effect on all transactions from 2010 onwards. We have now said that it will take effect on transactions from April 1, 2017. So this is again a solid example of government not taking any type of retrospective effect to taxation measures.