New Delhi, Nov. 1: The Vijay Kelkar Committee on direct taxes plans to progressively bring down the corporate tax rate on foreign companies from 40 per cent and bring it on a par with domestic companies. It also intends to phase out exemptions to companies to plug tax leakages, reform the minimum alternate tax (MAT) and raise income-tax slabs to give the common man relief.
In the last budget, the government had cut the tax rate on foreign corporations from a hefty 48 per cent to 40 per cent. Indian companies are being taxed at 35 per cent, plus a 5 per cent surcharge, which works out to 36.75 per cent.
There have been repeated pleas by various European countries to reduce the incidence of corporate tax on foreign companies doing business here. The move to bring them on a par with Indian companies would be welcome.
Officials say that in future WTO rounds, they will, in any case, have to accede to a protocol whereby foreign companies will be given equal treatment in taxation and other policy matters. The Kelkar committee also wants administration of corporate tax to be done in a more efficient manner so that the current practice of hiding profits in the form of capital gains which attract preferential treatment is discouraged.
Second, various kinds of exemptions available to firms should be reduced so that tax leakages are reduced in number, if not scrapped altogether. It also wants introduction of a reformed MAT, which will be based on a slab tax of 10 per cent on dividend outgos, besides a 0.75 per cent tax on the net worth of a company.
The committee also favours raising personal income-tax slabs, doing away with surcharges on income tax imposed last year and weeding out exemptions.
The committee would like the lower level of the lowest slab, which starts from Rs 50,000 annually, to be raised upwards by 15-20 per cent.
Similarly, the slab of 20 per cent income tax payees has been recommended for change from a current Rs 60,001-Rs 1.5 lakh to one of Rs 60,000-75,001 to Rs 2 lakh. The highest slab of 30 per cent could then be for those earning more than Rs 2 lakh.
An earlier proposal by the Shome committee on taxation had suggested an even more generous rationalisation of tax slabs, but the Central Board of Direct Taxes has shot it down as it would have meant a tax give-aways of Rs 6,000 crore. Even these changes are expected to result in some tax give-aways. Officials feel it might lead to a tax give-away of about Rs 3,500 crore.
Various pressure groups, including the BJP party itself, has demanded that the income level up to which zero taxes are charged should be raised to Rs 60,000. But ministry officials do not agree. Their point is that there is a need to widen the tax base rather than shrink it.