NEW DELHI: Government suffered a revenue loss of Rs 1.84 lakh crore in 2019-20 and 2020-21 due to reduction in corporate tax rates effective from 2019-20, according to a report by the parliamentary committee on Estimates. In the first year when the corporate tax rate was reduced, that is 2019-20, the overall loss was Rs 86,835 crore, followed by a loss of Rs 96,400 crore in 2020-21.
Recently, finance ministry sources said that following the 2019 corporate tax cuts, total corporation tax collections in 2019-20 declined by nearly 16% to Rs 5.57 lakh crore, compared to Rs 6.63 lakh crore in 2018-19.
In 2019-20, the government announced the reduction in corporate tax rate from 30% to 22%. The government had also announced a lower rate of 15% for newly-incorporated domestic companies.
According to the parliamentary committee report, nearly 16% of the companies accounting for 62% of the total income opted for 22% tax rate in the first year (2019-20), while 0.14% companies benefited from the lower tax rate of 15%.
The government had earlier told the parliament that effective tax rate of the entire base of companies reporting profits had come down to 22.54% in 2019-20 as against the rate of 27.81% in the financial year 2018-19.
The parliamentary committee had raised concern over the fact that tax revenue estimates had to be revised downward by 10% in 2019-20, and recommended the government to do a study for the reasons in drop in revenue collection. In response to this recommendation, the finance ministry made the revenue loss estimate in corporate tax collections due to reduction in tax rates.
Recently with the raging debate over freebies, Opposition parties have criticised the government for making ‘concessions’ for corporates while trying to curtail the subsidies given to the poor.
In its defence to reduction in tax rates, finance ministry officials have said that corporate tax collections have surpassed the 2018-19 numbers in 2021-22, when corporate tax collections rose to Rs 7.12 lakh crore.
Corp tax collection rises 34% in Apr-Jul
Tax collected on income of companies surged by 34% in the first four months of the current fiscal that began in April, indicating that a simplified tax regime with low rates is yielding results, the Income Tax Department said. The department tweeted on corporate tax collection growth in an apparent attempt to counter criticism of the 2019 reduction in tax rates for companies.