Corporate Tax

Corporate Tax

Subject :Economy

Section: Fiscal Policy

Context: Corporate tax cut has led to a revenue loss of ₹1.84 lakh crore to the public exchequer as per the Parliamentary Estimates Committee report.

Details:

• The Taxation Laws (Amendment) Bill, 2019 caused a reduction in the base corporate tax rate, that is, from 30 percent to 22 per cent for the existing businesses and
• For new manufacturing firms that have been established post 1st October, 2019 and prior to 31st March, 2023, the base corporate tax was reduced from 25 per cent to 15 per cent.
• The new corporate tax rates in India are much lower than USA (27%), Japan (30.62%), Brazil (34%), and Germany (30%) and for the new firms the tax rate is similar to Singapore (17%).

Concept:

• A corporate tax, also called corporation tax or company tax, is a direct tax imposed by a jurisdiction on the income or capital of corporations or analogous legal entities.
• Corporate tax is the tax which is levied on the income of the domestic and foreign companies that arose in India.
• It is levied on both the public and private companies registered under the Companies Act of 2013.
• The rate at which the tax is imposed as per the provisions of the Income Tax Act, 1961 is known as the Corporate Tax Rate.
• The Minimum Alternate Tax (MAT) does not apply to such companies.
  • The Minimum Alternate Tax is a measure to include all companies in the income tax loop. The MAT ensures that no company with healthy finances and substantial income can avoid paying income tax, even after claiming exemptions.
• Taxes are levied on a company’s taxable income, which comprises revenue minus cost of goods sold, general and administrative expenses, selling and marketing, R&D, depreciation, and other operating costs.
• Corporate tax is an expense of a business levied by the government that represents a country’s main source of income, whereas income tax is a type of tax governmentally imposed on an individual’s income, such as wages and salaries.
• Corporate tax rate to be 22 per cent without exemptions and Effective corporate tax rate after surcharge and cess to be 25.17 percent for existing companies.
• The effective tax for new companies shall be 17.01 percent, including cess and surcharge. Companies enjoying tax holidays would be able to avail concessional rates post the exemption period.

Estimates Committee

• The Estimates Committee is a Committee of Lok Sabha. The motion for election of the first Estimates Committee was adopted by the Provisional Parliament on 3^rdApril, 1950 and the Committee was elected on 10^th April 1950.
• The Committee consist of not more than 30 Members from Lok Sabha who shall be elected by the House every year from amongst its members according principle of promotional representation by means of single transferable vote. The Speaker is empowered to appoint the Chairman of the Committee from amongst its members.

Functions of the Committee

Rule 310 of the Rules of Procedure and Conduct of Business in Lok Sabha define the scope of functions of the Committee as under:-

(a) to report what economies, improvements in organization, efficiency or administrative reform, consistent with the policy underlying the estimates, may be effected;

(b) to suggest alternative policies in order to bring about efficiency and economy in administration;

(c) to examine whether the money is well laid out within the limits of the policy implied in the estimates; and

(d) to suggest the form in which the estimates shall be presented to Parliament;