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Cut In Corporate Tax Is A Liability For Individuals

Government is likely to revisit the exemption list, increase the rate of taxes and also explore the possibility of whether cess can be levied on some services to make up their revenue deficit.

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Indian economy is going through tough times due to a number of factors which include a slowdown in private consumption, investment and export. Also, the latest GDP growth rate has slipped to 4.5per cent, whereas there are various countries like Vietnam and China still growing at a rate of over 6 per cent. It seems that India as a hub of the global business centre is losing its sheen to other countries and our battling finance minister introduced q slew of measures on Income tax front in the month of September 2019.

Some of the high-value decisions from the government were to reduce the tax for domestic companies from existing 30per cent to 22 per cent, for new manufacturing companies from existing 30 per cent to 15per cent, Minimum Alternate Tax rate reduced from existing 18.5 per cent to 15 per cent and removal of 25per cent/37per cent surcharge on capital gains arising on sale of equity share or equity-oriented fund liable for securities transaction tax, in the hands of an individual/HUF. All these proposals put together to have an estimated bill of Rs 1,45,000 crore for the exchequer.

The government has already started to penalise high-income individuals to make up for the tax losses and now those earning over Rs 2 crore is paying income tax at 39 per cent and those earning over Rs 5 crore is paying at 42.7 per cent.

Some of the sectors of the economy are also demanding to do away with dividend distribution tax, securities transaction tax and long-term capital gains tax on shares which could further burn a hole of over Rs 80,000 crore. The government is expected to reject this demand of the select class.

Minister of state finance has reported in parliament that the Central GST collection fell short of the Budget Estimate by nearly 40per cent during the April-November period of 2019-20. The actual CGST collection during April-November, 2019 stood at Rs 3.28 lakh crore, while the Budget Estimate was of Rs 5.26 lakh crore for said months.
 
 If at the current position, the government does not want to cut welfare spending or increase taxes, it would need to increase borrowing to inject cash into the market. With increased government expenditures towards social welfare schemes such as Ujjwala scheme, Pradhan Mantri Kisan Samman Nidhi, Pradhan Mantri Kisan Pension Yojana, Atal Pension Yojana and others, roads ahead are full of challenges for the government.  The government expenditure would be pumped to maintain the schemes and to boost the economy simultaneously when it is heading towards a slowdown. What government would need is hard cash, and that too at that time when revenues are failing to meet the expectations. 

The government has already started taking steps pushing the tax collections, especially on the GST front. In the direction where it can increase its revenue collection anyway. Post corporate tax rate cut and already huge rate of tax on rich individuals, indirect tax is the only shoulder to bear the burden of the gloomy economy. The footprints of responsibility on indirect tax could be ascertained through various rules or notifications being issued by the government in recent times.

GST Council has restricted the claim of input tax credit only to those invoices which have been loaded by suppliers on GSTN portal, leading to deferment of the tax credit for various category of recipients. The government also has recently empowered the Tax department to impose restrictions on the use of available Input Tax Credit for risky recipients in select cases.

 Government is likely to revisit the exemption list, increase the rate of taxes and also explore the possibility of whether cess can be levied on some services to make up their revenue deficit. Tax officers with help of GSTN data analytics are issuing notices, calling for records and imposing hefty penalties on minor breaches of procedural tax laws, even if authorities are unable to prove any tax evasion or malafide intention on the part of taxpayers. The keenness of tax officers to penalize is cropping up from the building revenue collection pressure from the top.

With 3.75 lakh crore blocked in excise and service tax litigation, the government came out with a dispute resolution scheme to settle down the pending disputes in one go as the interest and penalty will be waived on payment of tax dues on a voluntary basis. This scheme received a good response from the taxpayers resulting in a settlement of Rs 70,000 crore of tax boosting government kitty with Rs 30,000 crore. This scheme was also a clear indication of the intention of the government to find ways to collect tax revenues in a single shot even if it comes with some deep discounts. 

The above strategies are falling short of generating enough funds for the government to meet its expenditure which is resulting in a widening gap for fiscal deficit. Now the government is expected to unload the burden on indirect taxes by withdrawing exemptions or increasing the GST on various items. A load of indirect taxes would be on consumers, thereby the idea of benefitting the corporate through slashing direct tax rate and then recouping the revenue deficit through indirect tax seems to be harsh for the general public. As 2019 is concluded, it leaves us with far more questions than answers, answers to some of which may become clearer in 2020. Hope in 2020 tax policies would be made more individual-centric. 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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corporate tax gst council Ujjwala scheme

Rajat Mohan

The author is Partner, AMRG & Associates

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