India’s corporation tax rate stands at 30 per cent against 21 per cent proposed in the US tax bill. The six-member panel headed by Central Board of Direct Taxes Member Arbind Modi would try to address fears of a flight of capital from Indian subsidiaries to their parent US firms, sources said.
“We will certainly take into account the taxation changes in the US. We are going to write the law not for the next one or two years, but for the next 50 years,” said a member of the committee. He added the challenge would be to balance the national interest with international norms. “The issue is that after the disruption by the US, many countries will follow suit," he pointed out.
The reduction in the US corporate tax rate from 35 per cent to 21 per cent in the Tax Cuts and Jobs Act (TCJA) will affect IT/ITES and pharmaceuticals companies in India as American firms will try to move profits back home. The Union Budget offered a 5 percentage point reduction in corporation tax only for firms with an annual turnover of Rs 2.5 billion. An across-the-board reduction would have lowered the Centre’s revenue by Rs 600 billion. Finance Minister Arun Jaitley had promised an across-the-board reduction in corporation tax to 25 per cent in four years till 2019-20.
The panel is also expected to discuss a change in income-tax slabs. Nine years ago, the Direct Tax Code had recommended an exemption limit of up to Rs 300,000. “We will certainly take forward the recommendations of the DTC if they are valid nine years hence,” said the official. He added the tax base would have to be broadened to offer rate cuts or higher exemption limits.
The DTC was junked by Jaitley in the Budget for 2015-16. The task force drafting the new direct tax legislation is expected to submit its report by May 31. “We hope to conclude and submit the report by the end of May,” said another official.
The task force has decided to meet twice a week to prepare the report. Chief Economic Advisor Arvind Subramanian is a permanent special invitee in the task force.
The committee was constituted to look into the direct tax system prevalent in various countries, international best practices, the economic needs of the country and other related matters.