a tr t re in ndia 17.11
Meanwhile, the government started a improvements in tax administration in recent
process of ‘corporate tax rationalisation’ linked years have brought tax expenditure down—current
to ‘phasing out various incentives’ availed by the situation21 is as given below:
companies (calibration process). In its first phase, (i) 15 per cent for corporate tax (32 per cent
in 2016-17, two changes were implemented of 2007-08).
regarding the corporate tax liabilities of the (ii) 16 per cent for income tax (37 per cent in
(i) New manufacturing companies, (iii) 100 per cent for excise duty (70 per cent
incorporated on or after March 1, 2016, in 2007-08). It was at a high level of 162
will have an option to pay 25 per cent per cent in 2009-10 on account of tax
(plus surcharge and cess) corporate tax. concessions announced by the GoI to
To avail this, the companies will not control inflation.
have to claim profit-linked deductions,
(iv) 160 per cent for custom duty (92 per cent
accelerated depreciation and investment
in 2007-08). It was at a high level of 235
allowance. For the other companies the
per cent in 2009-10 due to concessions
rate of tax to remain 30 per cent (plus
announced for custom duty in wake of
surcharge and cess).
(ii) One per cent cut in the corporate tax
To realise full tax potential the governments
for the small companies. The companies
needs to limit exemptions and their grandfathering22
which had turnover up to Rs. 5 crore
together with broadening the tax base. The level of
till last year will now pay 29 per cent
tax expenditure is slated to fall steeply once the
corporate tax (plus surcharge and cess).
This is seen as an alternative to the existing proposed GST is operationalised in the country.
investment allowance scheme. Under its process of rationalising the corporate
tax (cutting it down from 30 to 25 per cent), the
government is also aimed at calibrating (phasing
Tax expendiTure out) the various tax exemptions/incentives which
There has been a divergence between the official exists for the various industries. Its first phase has
tax rate and effective tax rate in India—defined as already commenced in 2016–17.
the ratio of total tax collected to the aggregate tax 21. Statement of Revenue Forgone, Budget documents &
base. The divergence occurs mainly on account of CSO, MInistry of Finance, Economic Survey 2015–16,
tax exemptions. Tax expenditure is also known as p. 37.
revenue forgone. But such forgone taxes doe not 22. Grandfather Clause – a clause in a new law that exempts
certain persons or businesses from abiding by it. For
necessarily mean that they have been waived off by example, suppose a country passes a law stating that it
the government. Better, it should be interpreted is illegal to own a cat. A grandfather clause would allow
as incentives given by the government to promote persons who already own cats to continue to keep them,
but would prevent people who do not own cats from
certain sectors, in absence of which they may not buying them. Grandfather clauses are controversial, but
have come up. they are common around the world. [Source: Farlex
Financial Dictionary, Farlex Inc., N. York, USA, 2012;
High tax expenditure can make the tax system Collins English Dictionary- Complete & Unabridged,
unduly complex and bring in distortions in it. As HaperCollins, N. York, USA, 2003.]
a result of simplification in the tax system and