Despite strong lobbying from corporates, the Union Finance Ministry is not in favour of further reduction of corporate tax to 25 per cent as it fears that it will hurt the tax collection further. The government is already staring at widening revenue deficit.
“Current indicators are suggesting that the revenue collection side is not looking good. We are already staring at a revenue deficit, which will grow up further. Reducing corporate tax will make it more difficult to meet revenue targets. The tax collection will suffer,” said a senior official from the Department of Revenue, Ministry of Finance.
Lowering corporate tax was long-pending demand from the India Inc. Observing that the US and the UK have lowered their corporate tax rates to 21 per cent and 17 per cent respectively, corporates demanded that the government should cut it to 25 per cent for all firms. This figured on the top of India Inc’s wish list for the upcoming Budget, which they strongly pushed forward in their pre-Budget meeting with both revenue secretary Ajay Bhushan Pandey and Finance Minister Nirmala Sitharaman.
The finance ministry official said that low tax collection, poor compliance and an increasing case of evasion hardly leave any room for reduction in corporate tax. On the contrary, the department has suggested imposing of some new taxes, including estate tax and cash transaction tax to fill the kitty and keep a track on the transfer of black money. “The GST collection is already low and there is hardly any legroom for increasing personal income tax. In this scenario, there is not much legroom for the government to cut corporate tax rates in the near future unless revenue receipts soar,” the official added. The combined monthly target of Central and state governments for this fiscal is about Rs 1.14 lakh crore, out of which the government is able to manage just over Rs 1 lakh crore.
As per the latest data released by the Controller General of Accounts, tax revenue was at Rs 13,16,951 crore during the last fiscal, falling short of the Rs 14.84 lakh crore target set in the revised estimates. Total receipts stood at Rs 16.66 lakh crore during the fiscal, compared to Rs 18.22 lakh crore in the revised estimates.
The Finance Minister has asked the revenue department to pull up its socks to improve tax compliance. Some recent decisions, including firing 27 officials, have sent a strong warning to the department. The first GST Council meeting after the general elections has already indicated the government’s stand as the council did not reduce tax slabs on any item, despite huge demand from the industry.