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Budget 2018: 25% corporate tax rate to boost small, medium size companies

Arun Jaitley while presenting the Union Budget 2018 cut tax to 25% for companies below Rs 2.5 bn turnover

BS Reporter  |  Mumbai 

Illustration: Ajay Mohanty

The 2018 has proposed a lower corporate tax rate of 25 per cent on companies with an annual of up to Rs 2.5 billion. As the tax rate earlier was 30 per cent, this would give a massive boost to the small-and-medium-sized companies that were facing the brunt of demonetisation and goods and service tax. The government said it will forego Rs 70 billion (Rs 7,000 crore) of revenue due to the move.

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The lower corporate tax will also cover 99 per cent of the companies filing their tax return, Finance Minister Arun Jaitley said. In his first speech in 2014, Jaitley had promised that the Modi government would reduce corporate tax to the levels in order to attract investments into the country. Most of the large companies already pay less tax due to various investment incentives offered to them, say tax experts. The tax rates are between 20 per cent and 24 per cent for companies which makes most prefer these countries instead of

Tax experts said a lower tax rate would help new-age technology start-ups, who have a high turnover, lesser expenses, higher profits and higher cash-burn rates. This is to ensure that they have enough money to plough back towards the growth of the venture, increase the quality of output and engage more human resources. Not only start-ups, but small family-run businesses, manufacturing and small factory units where the is below the threshold, will benefit from this change.

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“Finance Minister keeps with his promise of reducing the corporate tax rate to 25 per cent in a phased manner as the benefit is extended to companies having of up to Rs 2.5 billion in the year 2016-17, which is a considerable increase from the threshold of Rs 5 billion applicable currently,” said Ritu Shaktawat, associate partner, Khaitan & Co.

Other tax experts said while the reduced corporate tax rate of 25 per cent is a welcome move, the expectation was a reduction in corporate tax rates for all companies. “Moreover, increase in cesses by one per cent, increases tax costs for all,” said Hitesh D Gajaria, head of tax, KPMG in

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Since increased cash flow will be available for the entities, this will increase the valuation of the company and definitely attract investments from PEs and VCs. “Considering the historic pattern, where start-ups tend to have losses for initial years, the benefit from this tax rate will be enjoyed later in time,” said Pranav Jain, partner, MDP & Partners.

First Published: Fri, February 02 2018. 13:43 IST