The big boys of business are planning to lobby hard for a sharp cut in the corporate tax rate to 25 per cent — a promise that the Narendra Modi government has held out for some time.
“Our corporate tax rates are some of the highest in the world; they need to be brought down,” Godrej group chairman Adi Godrej said soon after the election trends started to show that the Modi government would receive a massive mandate.
“The government had promised that the corporate tax would be brought down to 25 per cent. They have done it for smaller companies but they haven’t done it for the larger ones,” Godrej added.
The corporate tax rate was cut to 25 per cent for companies with a turnover of less than Rs 50 crore in the budget for 2017-18. Last year, the Modi government had extended the benefit to companies with a reported turnover of Rs 250 crore — benefiting the entire class of micro, small and medium enterprises that account for 99 per cent of companies filing their tax returns.
The revenue foregone as a result amounted to Rs 7,000 crore. The tax break was also extended to new manufacturing companies without any turnover limits.
“After this, out of about 7 lakh companies filing returns, about 7,000 companies which file returns of income and whose turnover is above Rs 250 crore will remain in the 30 per cent slab,” finance minister Arun Jaitley had said in his budget speech for 2018-19.
Harish Mariwala of Marico, a leading FMCG player, also believes that the new government needs to trim the corporate tax rate, adopt labour reforms that will give companies the flexibility to reduce the labour force as they prepare to make capital investments in their businesses, and introduce judicial reforms that will break the logjam that delays court verdicts.
A delegation from the Confederation of Indian Industry (CII) is scheduled to meet finance secretary Subhash Chandra Garg, who doubles as the economic affairs secretary, on Monday to discuss a list of demands that it hopes will feed into the budget which the new government is due to present in early July.
CII president Vikram Kirloskar told a news channel that the industry forum has already prepared a “long laundry list” ahead of those discussions.
Sanjay Nayyar, a former banker and currently chief executive officer of private equity firm KKR India, believes a lot will depend on the new government’s commitment to cap fiscal deficit and resist pressures to adopt populist measures after the huge win.
Deficit watch
In the interim budget presented on February 1 this year, stand-in finance minister Piyush Goyal had projected that fiscal deficit would be capped at Rs 7,03,999 crore, or 3.4 per cent of GDP, in 2019-20.
Industry would love to see the new government stick as close to this number as possible in its new budget as it would then limit market borrowings to just under Rs 4.5 lakh crore — giving India Inc the desired space to “crowd-in” private investment.
But it is going to be hard for the new government to sacrifice revenue by slashing corporate taxes for the large companies in the looming budget — and it may instead prefer to give them an indicative timeline for such reductions.
India Inc will also be hoping to see more measures that will ease the rigours of doing business in India.
Biocon chief Kiran Mazumdar Shaw wants the removal of regulations that require certain businesses to renew their licences every year and introduce the concept of “perpetual licences”.
Others such as Pawan Goenka, group president of vehicle manufacturer Mahindra and Mahindra, are hoping the government will take steps that will tamp down on the costs of running a business, including input costs, the costs of logistics, land costs and shorten the time for setting up new businesses, which tends to crank up project costs.
Nayyar said during a panel discussion on a new channel that India needs to depend less on foreign funds flows and instead focus on tapping into local savings.
