Aimed at encouraging 96% companies in Corporate India and also incentivise job growth in the private sector, Finance Minister Arun Jaitley in the Union Budget 2017-18 has reduced the corporate tax to 25% from 30% for firms with an annual turnover of up to Rs 50 crore. The decision will directly benefit the Micro, Small and Medium Enterprises (MSME) and make them more viable and encourage such firms to migrate to company format.
“As per the data of assessment year 2015-16, there are 6.94 lakh companies filing returns, out of which 6.67 lakh firms fall in this category. Therefore percentage wise, 96% companies will get the benefit of this lower taxation,” Jaitley said in his speech.
As per data of financial year 2015-16, 2.85 lakh companies making profit of less than Rs 1 crore pay effective tax rate of 30.26% while 298 companies making profit above Rs 500 crore pay effective tax rate of 25.90%.
He said MSME sector is more competitive as compared to larger companies and is also instrumental in providing maximum employment to people. The revenue foregone estimate as a result of reduction is tax is expected to be Rs 7,200 crore per annum. The industry welcomed the announcement. “…infuses high confidence and further promotes the country’s high growth path”, said Chandrajit Banerjee Director General, Confederation of Indian Industry.
However, a few felt that a progressive tax rates would have attracted global investors. “Corporate India welcomes the initiatives to expand the tax base and eliminate evasion. While the targeted proposals on corporate taxation are welcome, progressive steps towards achieving competitive tax rates could have attracted global investors,” said Jatin Dalal, Chief Financial Officer, Wipro Limited.
The move will benefit over 70 per cent of the companies engaged in the auto component sector are small and medium enterprises, says Rattan Kapur, President ACMA.
“Rewarding MSMEs by reducing rate of income tax will further boost Make in India,” said Krish Iyer, Walmart India CEO.