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| Cut in Corporate tax does not bring enough cheer |
| BS Reporter / Mumbai Aug 31, 2010, 01:05 IST |
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The final version of the Direct Taxes Code (DTC) announced today will have less cheer and more disappointment for the country’s corporate bodies.
The corporate sector was expecting more reduction in the corporate tax vis-à-vis the Minimum Alternate Tax, or MAT, which companies pay on their book profits.
Corporate tax has been reduced to 30 per cent (inclusive of surcharge and education cess) from the current 33.22 per cent, while MAT rates have been raised marginally from the current 19.93 per cent to 20 per cent. Industry was expecting a reduction in the corporate tax much below the 25 per cent suggested in the DTC draft released in August 2009. The new rates will come into effect from April 1, 2012.
Even as Sajjan Jindal, vice-chairman and managing director of Jindal Steel Works, welcomed the reduction in corporate tax rates, it was clear it belied his expectations. “It’s a very positive step. Tax rates are down to 30 per cent . We were expecting it to be 25 per cent,” he says.
Tax outgo rises
Companies will have an increased tax outgo under the new changes, says Sunil Shah, Partner, Deloitte Haskins and Sells. “We would have expected that if the corporate tax has been reduced, then MAT, too, would have been reduced correspondingly,” he adds.
With a reduction in the gap between the normal corporate tax and MAT rates, the scope of a company’s ability to carry forward any MAT credits is also lowered. Currently, companies can carry forward MAT credit that is equivalent to the difference between the corporate tax and the actual MAT paid.
The new Code has actually increased the credit carry forward period to 15 years from the current 10, which is being seen as a positive move.
Ajay Piramal, chairman of Piramal Enterprises, observed: “Earlier, there were some serious apprehensions which business and industry had about DTC. The government has tried to solve many of these. However, the devil is always in details”.
And, right enough, despite the increase in the term, the new Code does not make it clear if companies paying their MAT in 2010 or 2011 will be allowed to carry it forward for the entire 10-year term.
| NOT MUCH FOR INDIA INC |
| Particulars |
Income
Tax Act |
Draft DTC,
Aug ‘09 |
Corporate tax rate for
domestic companies |
33.22 |
25.00 |
Consolidated corporate tax rate
for domestic companies
(including dividend distribution tax) |
42.73 |
34.78 |
Corporate tax rate for foreign companies
(including branch profit tax) |
42.23 |
36.25 |
| Minimum Alternate Tax (MAT) |
19.93
on book profits |
2 on gross
value of assets |
Figures in %
Compiled by: Deloitte Haskins & Sells |
The Code has also done away with the incentives, deduction and exemptions available to the corporate sector. All corporate taxpayers will now be liable to MAT, including those availing of the incentives linked to investments and profits.
Companies involved in setting up SEZs, as also the units in these, IT and infrastructure-related sectors will no longer enjoy the tax benefits.
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