Reduction in corporate tax rate to boost small, medium size companies: Nirmala Sitharaman

The Narendra Modi government's move to reduce corporation tax rate to 25 per cent would give a boost to the small-and-medium-sized companies, said Finance Minister Nirmala Sitharaman while interacting with prominent economists and industrialist at the India Today Budget Roundtable. Sitharaman said that the companies with an annual turnover of up to Rs 250 crore will now be taxed at a lower rate of 25 per cent as a step towards a phased reduction in tax rates.

In the Union Budget 2019, the FM announced levying corporate tax at the lower rate of 25 per cent, from current 30 per cent, which will lead to revenue forego of around Rs 7,000 crore.

In response to a question by Indian economist, Ila Patnaik, FM Sitharaman said that the lower corporate tax will also cover 99.7 per cent of the small and medium-sized enterprises (SMEs). The remaining 0.3 is the one making a difference towards taxation, she said.

When asked about increasing the tax cap from 250 to 400 crore, Sitharaman said that we would like to move to cover everybody.

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"Currently, a lower rate of 25 per cent is only applicable to companies having an annual turnover up to Rs 250 crore. I propose to include all companies having an annual turnover of Rs 400 crore," Sitharaman had said in her Budget speech in Lok Sabha.

Responding to a question if the Modi government would reduce corporate tax to the (Association of Southeast Asian Nations) ASEAN levels, she said, "The government is conscious that other south-east Asians countries that we compete with, are coming below from 25 to 20 per cent."

It is to be noted that most ASEAN countries have reduced corporate tax to the levels of 20-25 per cent in order to attract investments into the country.

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Partho Dasgupta, Partner-Tax & Regulatory Services, BDO India, said, "Proposal to increase the limit to Rs 400 crore from the current Rs 250 crore for the application of 25 per cent tax rate coverage while seems large at more than 99 per cent coverage, the possibility of full-scale reduction of tax rate aligned to falling head-line tax rates seems to have taken a back-seat." 

Edited by Chitranjan Kumar