FICCI in its Pre-Budget recommendations for 2019-20 has suggested reduction in the corporate tax rate across the board to 25% (irrespective of turnover) to spur economic growth and increase overall tax collections. The chamber has also suggested revision in the tax slabs for the individual taxpayers with the top 30% rate to be applied beyond Rs 20 lakh annual income.
Along with these, FICCI has also recommended reduction in the rate of Minimum Alternate tax (MAT) among other measures to simplify the tax structure. Some of the major recommendations of the chamber are following:
1. Reduce corporate tax rate to be competitive in the global market
Businesses today are faced with high tax cost leading to increased cost of production and resultant lower surplus for reinvestment and expansion. The basic corporate tax rate of 30 percent coupled with dividend distribution tax rate of 20% makes the effective tax cost for an Indian company too high. The Government has phased out the tax incentives, the reduction in corporate tax rate has been limited only to companies with certain turnover. With many key global economies going for significant rate cuts, there is a need for India to consider across the board rate cuts for businesses. The historic tax reform legislated by US that cuts the corporate tax rate from a top rate of 35% to 21% is noteworthy. It is very important that India should reassess its tax rate to maintain competitiveness in the global market.
2. Reduce rate of Minimum Alternate Tax
The purpose behind introduction of Minimum Alternate Tax (MAT) was to bring all zero tax companies and to neutralize the impact of certain benefits/incentives. With phasing out of exemptions and incentives under the Act, the current rate of MAT of 18.5% is quite high and has impacted significantly cash flow of companies who otherwise have low taxable income or have incurred tax losses. With the phasing out of exemptions and deductions available under the Act, the burden of MAT should also be gradually reduced from the current levels of 18.5 per cent to a rate which will be commensurate with the phasing out of tax exemptions and incentives.
Presently, the amount of loss brought forward or unabsorbed depreciation whichever is less as per books of account is allowed as a deduction while computing book profit for the purpose of MAT. The said provision adversely affects companies which have huge book losses and less unabsorbed depreciation as they will have to pay MAT despite having ample amount of book losses thereby affecting their cash flows. It is recommended that the methodology for computing loss brought forward and unabsorbed depreciation as per books of account be specifically provided in section 115JB of the Act.
3. Continue weighted deduction on scientific research expenditure
It is well recognised that scientific research is the lifeline of business in all countries of the world. Indian residents are paying huge sums by way of technical services, fees to foreign technicians to upgrade their products and give the customers what latest technology gives globally. If in-house research is continuously encouraged, outgo on account of fees for technical services will reduce and this will help indigenous businesses to grow. Like made in India, ease of doing business and encouragement to start up initiatives of the government, innovation and scientific research initiative should be given equal weightage.
Withdrawal of weighted deduction in respect of scientific research expenditure will put a dent to the 'Make in India' initiative of the Government. It is recommended that weighted deductions allowed under the Income Tax Act, 1961 to various modes of scientific research expenditure be continued. The Government can also consider introducing benefits in the form of research tax credits which can be used to offset future tax liability (like those given in developed economies).
4. Allow deduction for corporate social responsibility expenditure
The expenses incurred by the taxpayer on the activities relating to CSR referred to in Section 135 of the Companies Act, 2013 shall not be deemed to be incurred for the purpose of business and hence, shall not be allowed as a deduction for computation of income. The corporate sector spend is effectively assisting the Government in undertaking social projects for the country. Therefore, making an express provision for not allowing a deduction is unfair. It is recommended that a deduction of CSR expenses incurred by the taxpayers pursuant to provisions of the Companies Act should be allowed in computing business income.
5. Tax on income from transfer of carbon credits - Section 115BBG
The controversy surrounding the taxation of income from the transfer of carbon credits has been going on for a while now. Introduction of section 115BBG to the Act providing for a 10% tax on income from transfer of carbon credits is a very welcome move. However, since the amendment is a prospective one, litigation for assessment years prior to AY 2018-19 continues to fester. This coupled with the fact that the global market for carbon credits has all, but collapsed and alternative bilateral offset mechanisms are being explored leads to unnecessary hardship for taxpayers.
It is suggested to extend the benefit of this 10% rate to earlier years also as it will go a long way towards furthering the Government's stated objective of curbing litigation as also supporting projects that have helped the global environment by reducing carbon emissions. To this end, for the periods prior to Assessment Year 2018-19, we submit that an option may be given to taxpayers to voluntarily offer income from transfer of carbon credits to tax at the same 10% rate as present in section 115BBG of the Act. This can help put an end to protracted litigation on the issue. Considering that such receipts have been held as non-taxable capital receipts by some High Courts, such a move will also benefit the exchequer.
6. Increase threshold limit under Section 80C of the Act
Over the years, investments made in various avenues available under Section 80C of the Act have helped the Government to raise funds as well as the individuals to save tax. The Government may look at increasing the overall deduction limit to at least Rs 300,000 to boost further investment and increase tax savings for the individual.
7. Electronic Meal Card
In 2001, taxation of subsidized/free meals as perquisite was introduced vide Finance Act 2001. The perquisite rules provided that any expenditure incurred by the employer on providing free/subsidized meals to its employees during working hours beyond Rs 50 per meal per employee was taxable in the hands of the employees. It is important to note that no change has been made in the prescribed exemption limit till date. In the year 2001, when the current limit of Rs 50 per meal for exemption purposes was first legislated, an employer could easily provide a sumptuous meal to his employees within the limit of Rs 50 without having to levy any tax on the employees. The average cost of a meal at various outlets which ranges between Rs 225 to Rs 375 per meal clearly highlights the insufficiency of the present limit of Rs 50 per meal. It is recommended that tax-exemption limit of Rs 50 per meal should be revised to at least Rs 200 per meal, to factor in rising inflation and to keep the meal benefit meaningful and relevant for the employee.
8. Allow revenue department to appeal against the order of Dispute Resolution Panel
After the amendment made by the Finance Act, 2016, an assessing officer is not allowed to appeal against the order of DRP. The objective of the amendment as stated in the Memorandum Explaining the provisions of the Finance Bill, 2016 was to minimize litigation. The DRP that was intended to be a quality assessment filter, has lost its effectiveness due to the amendment brought in 2016 by the Finance Act. The Revenue has now been barred from appealing against its directions. This has restricted the freedom of DRP in passing directions favourable to tax payers. When DRP directions were appealable even by the Revenue, a distinct fairness in its directions was evident. DRP directions, therefore, should again be rendered appealable by the Revenue. It is recommended that the revenue officer should be allowed to appeal against the order of DRP. Suitable amendments in the Income Tax Act be made accordingly.