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Effective corporate tax rate increases to 24.67% in FY15 from 23.22% in FY14

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India's effective rate of corporate tax has inched up in the past one year closer to 25%, the proposed tax rate after phasing out exemptions. The effective rate went up to 24.67% in 2014-15 from 23.22% in 2013-14. 

Significantly, the effective rate is the highest for smaller companies that have a turnover of up to Rs 1 crore and lowest for those having turnover of more than Rs 500 crore. Smaller companies faced a rate of 29.37%, closer to the statutory rate, while their larger counterparts enjoyed a rate as low as 22.88% Statutory rate of income tax for companies having a turnover of Rs 10 crore is 33.84%, while for those with turnover of up to Rs 10 crore it comes to 32.44%. 

Budget documents have attributed the increase in effective rate to gradual phasing out of profit-linked deductions and levy of minimum alternate tax on companies. 

A tax official said a number deductions including one for special economic zones would have begun to come down in line with the framework. 

The sample size used for calculating the effective rate included 5,82,889 companies in 2014-15 compared to 5,64,787 in 2013-14. 

This asymmetry in the corporate tax structure due to widespread tax exemptions that benefited only select companies prompted the government to announce a plan to eliminate tax sops and bring down corporate tax rate to 25%. 

In the budget for 2016-17, the government unveiled a new plan whereby a new manufacturing entity can enjoy corporate tax rate of 25% if it does not opt for any tax deduction. It has also announced curtailment of tax exemptions such as the ones for research and development, and accelerated depreciation. 

The government incurred an estimated revenue loss of Rs 68,710 crore in 2015-16 in lieu of tax exemptions, a marginal increase from Rs 65,067 crore in 2014-15. If the minimum alternate tax liability is not taken out the total revenue foregone is as high as Rs 1,06,363 crore for 2015-16, according to the budget documents. 

Economic Times, New Delhi, 04 March 2016

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