PLAY­ING IT SAFE More Cash Flow for MSMEs

5% cut in tax rate to give cos an edge

The Economic Times - - Front Page - Hema.Ra­makr­ish­nan @times­group.com

Mum­bai: The gov­ern­ment steered clear of a bold re­form step of cut­ting the cor­po­rate tax rate and re­mov­ing a range of ex­emp­tions. In­stead, it pro­posed to re­duce the in­come-tax rate for mi­cro, small and medium en­ter­prises to 25% from 30% pre­vi­ously. It also al­lowed credit for min­i­mum al­ter­nate tax to be car­ried for­ward for up to 15 years in­stead of 10 years.

With the re­duced rate for the MSME sec­tor, 96% of In­dia’s com­pa­nies will ben­e­fit from lower tax­a­tion. “25% rate for 96% of t h e c o mpani e s . Ex­cel­lent. Top 4% pay lower ef­fec­tive tax any­way. Loss car­ry­over of 15 years un­der MAT is cor­rect. How­ever, no men­tion made on the GAAR prepa­ra­tion de­spite the tax ad­min­is­tra­tionchal­lenge be­ing im­mense,” said pub­lic fi­nance ex­pert Parthasarathi Shome.

In­dia’s cor­po­rate tax rate, at 34.6% with cess and sur­charge, is steep com­pared with the global av­er­age. The CII’s sug­ges­tion to lower the tax rate to a flat 18% with­out ex­emp­tions would have put all busi­nesses on the same level.

“With­out fac­tor­ing in ex­emp­tions, the re­duc­tion in the tax rate of MSMEs pro­vides them a level play­ing field with for­eign com­pa­nies,” said Kaushik Muk­er­jee, a part­ner at PwC. The outgo for an MSME will now be about 43.32% in­clud­ing the div­i­dend dis­tri­bu­tion tax, com­pared with 43.26% for a for­eign com­pany, which doesn’t pay DDT, he said. Limited li­a­bil­ity part­ner­ships, which are taxed at the low­est rate of 34.6%, could be the route for MSMEs to take, said Muk­er­jee. Big­ger com­pa­nies have been pro­vided some re­lief, with the Bud­get ex­tend­ing the time pe­riod to carry over MAT credit. How­ever, In­dia would need to speed up direct tax re­forms to at­tract in­vestors. Most coun­tries have chipped away at cor­po­rate tax rates to woo in­vest­ments and the new US ad­min­is­tra­tion has vowed to cut cor­po­rate tax rate to 15%.

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