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GST gets a nudge forward, DTC hits the dead end

Corporate tax reduction effective from FY17; instant relief comes in the form of GAAR deferment

BS Reporter  |  New Delhi 

Giving a major push towards implementing a rational goods and services (GST), Finance Minister took some steps to make the market ready for the increased rate which would subsume all indirect taxes. The service rate was revised from 12.36 per cent to 14 per cent. The educational and health cess was subsumed in the service rate increase.

Speaking to reporters, Jaitley said the next call of action on would be appointment of a new chairman for the empowered committee on “After the new chairman comes in, we would have a meeting with the committee. We look forward to passing the Constitutional amendment Bill in the session.”
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Amid high expectations on reforms, there was one item that the companies wanted but were really not expecting from the — reduction in corporate rates. Taking captains of industry by surprise, Jaitley announced the revision of corporate from 30 per cent to 25 per cent in four years.

This will, however, not be applicable for 2015-2016 — it will kickstart from FY17. “We wanted to give the corporate a notice period of one year to be ready,” stated the finance minister.

Defence: All guns blazing

The reduction in corporate rates would be complemented with removal of specific exemptions in a phased manner. “Work to remove the specific exemptions and the timeline for the reduction of corporate would begin now and some of these exemptions might be announced during the year,” said a senior finance ministry official.

“I would not refrain from calling it a big-bang Budget, as we were not expecting any announcement on corporate The finance minister also rightly pointed out that the specific exemptions were one key reason for litigations in India. By these announcements, corporates have indeed been incentivised for investments,” said Pratik Jain, partner,

Gross receipts are estimated to be Rs 14,49,490 crore. The states’ share is estimated to be Rs 5,23,958 crore. The Union’s share will be Rs 9,19,842 crore. Non-revenues are estimated to be Rs 2,21,733 crore.

What came as a relief for the corporates is the deferment of the General Anti Avoidance Rule (GAAR) to 2017, one area Indian businesses were not ready yet.

According to some experts, this cannot be termed reformist. “Expectations with regard to increase in slab rate for individuals, lowering MAT (minimum alternate tax) rates or incentives for manufacturing sector have not been met,” said Neeru Ahuja, Partner, Deloitte Haskins & Sells LLP.

Putting an end to speculation about the Direct Taxes Code (DTC), Jaitley said he would put the Bill in cold storage. A lot of the recommendations of have already been incorporated in the Income Act. “There is no great merit in going ahead with the Direct Taxes Code as it exists today,” Jaitley said in his speech.

To incentivise domestic manufacturing, the finance minister made announcements on the indirect front which are expected to yield Rs 23,383 crore.

The minister removed the anomaly of inverted duty structure in sectors such as electronics, steel and chemicals.

A lot of revenue is projected to come via cess, which goes only to the Centre’s kitty and is not shared by states including road cess by way of duties on and A yoga cess and an enabling provision of Swachh Bharat cess at two per cent were also mentioned.

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