Union Budget 2018: Would Tax Rates On Corporates Be Slashed?

Updated: Wednesday, January 31, 2018, 11:52 [IST]

In his budget presentation of 2015, Finance Minister Arun Jaitley had promised to cut corporate tax rates and bring the same down to 25 per cent.

Union Budget 2018: Would Tax Rates On Corporates Be Slashed?

The problem in doing so in Union Budget 2018 is largely two fold: The first is that this would be the full fledged budget before elections are held in 2019. And the second is that the fiscal deficit may not permit a cut in corporate tax rates.

The government will have to please the masses through job creation and better agricultural income or wreck its own chances of re election in 2019. In all probability there would be tax concessions for the common man and hence a cut in corporate taxes may not come through.

In fact, for job creation the government may need to pump heavy money into the infrastructure sector, leaving very little room to dole out goodies for the corporate sector.

It is also likely that we would see the fiscal deficit surpassing the projected target of 3.2 per cent, which could put further pressure on the government. The other worry for the government is the volatile nature of GST collections leading to unpredictability in revenues.

The last time the corporate tax rate was cut was in 2005 by the then Finance Minister P Chidambaram who bought it down to 30 per cent. It has not moved since for the larger set of corporates, though it has been tweaked for the smaller enterprises.

In 2016-17 Union budget the Finance Minister reduced the corporate income tax rate for of relatively small enterprises (i.e. companies with turnover not exceeding Rs 5 crore) to 29%. Corporate tax in India continues to be higher than many Asian countries.

This year in the Union Budget 2018, it looks difficult to believe that there would be a cut in corporate tax. If if does happen, corporates and stock markets would cheer.

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