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
     companies:                                                            2007-08).
          (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).
                                                                           controlling prices.
         (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