NEW DELHI: With the government keen to weed out exemptions and lower the corporate tax rate to an internationally comparable 25%, it is not willing to give any fresh ones. As a result, the proposed Japanese enclaves for industries have hit a tax wall with the revenue department making it clear that it cannot offer sops against its overall philosophy of ending them.
This issue figured in an inter-ministerial meeting called by Niti Aayog, said a government official aware of the matter. “The revenue department is not in favour of taking up any fresh exemptions,” the official said. The final decision will be taken at the highest level.
The industrial townships are envisaged as integrated industrial parks with readymade operational platforms having world-class infrastructure, plug-and-play factories and investment incentives for Japanese firms. This is part of the Japanese government’s initiative to double investments in India to about $35 billion in the next five years and strengthen bilateral economic ties. The government has already unveiled its plan to remove corporate tax exemptions and bring down the rate to 25%.
The Budget this year took the first step in that direction, announcing sunset dates for special economic zones and accelerated depreciation, the biggest exemption. These are estimated to have caused tax losses of Rs 17,600 crore and Rs 43,900 crore in FY16, respectively. An exception was made for startups as part of Start Up India initiative, allowing a three-year tax holiday thanks to the Prime Minister’s Office backing it.
The government is wary of allowing fresh tax holidays that will dent the overall plan that rests on minimal exemptions, an orderly structure and a low rate.
The nominal tax rate for Indian companies is 30% plus 12% surcharge, but the effective one is 24.67% due to exemptions. The Budget has also allowed a new regime for manufacturing companies that start business after March 1, 2016. They can pay a tax rate of 25% while not availing of any exemption.
India is eyeing overseas investment to boost growth and job creation. It has liberalised the foreign investment regime in many sectors such as insurance, defence and single-brand retail while putting others on the automatic route.
Credits ET Realty