Single corporate tax minus cess & surcharge on cards
The Economic Times, June 15, 2009, Page 17

Finance Minister May Do Away With Add-Ons, Tax Rate of 34% Likely

Mahima Puri NEW DELHI

THE upcoming Union Budget may bring some pleasant surprises for corporate India. Apart from doing away with the fringe benefit tax (FBT), the government is also considering removal of cess and surcharge on corporate taxes. Instead, the government may levy a common rate of direct tax on corporate income this fiscal onwards.

According to those familiar with the development, the details are being worked out by the finance ministry. The final decision is expected to be taken by finance minister Pranab Mukherjee in consultation with the Prime Minister Manmohan Singh.

At present, Indian companies are charged a corporate tax of 30%, along with a surcharge of 10% and an educational cess of 2% on tax payable. As per the Finance Bill of 2007, the surcharge on income-tax was not levied on all firms with a taxable income of Rs 1 crore or less. The total tax payable, including surcharge and cess, stands at about 34% for a domestic company. The government is now looking to charge a single tax close to 34%.

The Indian industry has been demanding abolition of educational cess and surcharge on corporate tax in order to make the tax structure more simplified. Those privy to the development told ET that this time, the government is actively pursuing the recommendation. “Although there have been many such recommendations in the past, this time, many officials in the central government are in favour of making these changes. We may see the changes coming through this year,” said an industry representative.

He also added that the government has so far kept away from abolishing the corporate surcharge and cess because they are charged separately and go into different accounts. The government charges the cess separately so that it is easier to use it later for investments in education. Industry associations such as CII, Ficci and Assocham have recommended that the government should divide the total tax paid into separate accounts itself.

Besides, the government is also likely to re-introduce Investment Allowance under section 32A of the Income Tax Act, on acquisition of new capital equipment such as plant & machinery, new ships and aircraft.

Industry associations had sought the re-introduction of investment allowance in order to attract more capital and infuse more investment into the economy. The chambers had recommended that the Investment Allowance be provided at 25-30% of cost in the assessment year in which the investment is made. “The government may introduce the allowance, but is also likely to provide it at different rates with each consecutive year,” the official said. The rates of allowance are being worked out.


UNTYING KNOTS

What is the current tax structure?

Companies have to pay 30% corporate tax

They also have to pay a surcharge of 10% and an educational cess of 2% on tax payable
The total tax payable, including surcharge and cess, stands at about 34% for a domestic company.

Why has govt not removed these yet?

The government has been reluctant to abolish surcharge and cess because they are charged separately and go into different accounts. Industry associations have recommended that the government should divide the total tax paid into separate accounts itself.
What are the other tax sops possible?

The government is also likely to re-introduce Investment Allowance under section 32A of the Income Tax Act, on acquisition of new capital equipment such as plant & machinery, new ships and aircraft.