The government wants domestic companies to set up their new manufacturing units as soon as they can. This is to avail the concessional tax rate of 15 per cent as it comes with a sunset clause, revenue secretary Tarun Bajaj said on Friday.
Speaking at an event by industry body Assocham, Bajaj also said India’s tax-to-GDP ratio could be the “highest ever” in the current year.
In her 2022-23 Union Budget, finance minister Nirmala Sitharaman said the concessional 15 per cent corporate tax rate would be available for one more year — till March 2024 — for newly-incorporated manufacturing units.
While reducing the corporate tax rate in September 2019, the government had said that any new domestic company incorporated on or after October 1, 2019, making fresh investment in manufacturing, will have an option to pay income tax at the rate of 15 per cent. This applied if they commenced production on or before March 31, 2023, provided they don’t avail incentives.
“There is a sunset clause on the special dispensation of concessional 15 per cent tax on companies setting up greenfield manufacturing facilities. Therefore, we encourage businesses to set up before the sunset date,” Bajaj said.
“Our tax-to-GDP ratio went down to below 10 per cent in the year, we brought down tax rates, but it has now started coming up. I will not be surprised if, in the current year, my tax-to-GDP ratio is the highest-ever for direct and indirect taxes taken together,” he said.
He said the rise in tax-to-GDP ratio shows that the government is stabilising its tax policy and the corporate sector is also adjusting to the less exemption regime.
After a gap of three years, direct tax collections — which include corporate tax and personal income tax — have exceeded the Budget estimates (BE) for 2021-22 fiscal ending March 2022. This indicates economic recovery.
Direct tax collection estimates for the 2021-22 fiscal has been revised upwards from Rs 11.08 trillion in BE to Rs 12.50 trillion in the revised estimates (RE). For 2022-23, direct tax collection has been pegged at Rs 14.20 trillion. This includes Rs 7.20 trillion from corporate taxes and Rs 7 trillion from personal income tax.
“I feel happy if the revenue collection is going up, showing good buoyancy. That means the corporate sector is doing well. And, unless the corporate sector does well, I don’t think we can move the wheels of the economy,” Bajaj said.
On the new tax regime, Bajaj said it is settling down, and as the time to claim exemptions ends, companies will choose this new regime over the old.
At a separate event by the PHD Chamber of Commerce, Bajaj said that after two years of record capex outlay, the government wants the private sector to take the lead in capital investment.
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