Finance Minister Nirmala Sitharaman on Friday announced that the government proposed to cut corporate tax rates to 22 percent for domestic companies. CNBC-TV18 has learnt from sources that the impetus for the corporate sector will result in a big tax collection hit for the government in the current fiscal
As Finance Minister Nirmala Sitharaman on Friday announced corporate tax rate cuts, she estimated that it could mean a revenue forego of about Rs 1.45 lakh crore. Multiple sources however, have told CNBC-TV18, that it should not be such a big revenue hit for the government and at best the actual revenue forgone could be around Rs 80,000 crore.
Also poor economic situation could pull down the overall direct tax collections by approximately Rs 1.2 lakh crore, inclusive of the hit on account of corporate tax reduction.
“The government expects close to Rs 1.2 lakh crore shortfall in its direct tax collection. Of this, around Rs 80,000 crore more due to the new tax rate structure and the remaining on account of various direct taxes such as personal income tax collections, etc.,” multiple sources told CNBC-TV18, adding that these are the rough estimates.
Finance Minister Nirmala Sitharaman on Friday had announced that the government proposed to cut corporate tax rates to 22 percent for domestic companies provided they will not avail exemptions or incentives and 15 percent for new domestic manufacturing enterprises as part of a raft of measures to boost economic growth.
On account of these, Finance Minister had said that "The total revenue foregone due to the relief provided stands at Rs 1.45 lakh crore per year."
However, sources shared that since not all corporate taxpayers are expected to do the transition from the earlier regime to the new regime in this fiscal itself, government could lose only about Rs 80,000 crore of the estimated Rs 1.45 lakh crore.
The overall direct tax collections target, as pegged in budget FY20 is Rs 13.35 lakh crore.
Sources further shared some of the key reasons for direct tax shortfall include: “Poor growth because of which taxes are growing only at six percent. Secondly, the current economic slowdown is likely to stay for some time because of which the collections might remain subdued and the advance tax collections are showing a similar trend of not being healthy. Thirdly, as announced by the Finance Minister, reduction in corporate tax rates will also pull down the overall direct tax collections.”
Along with this, indirect taxes are set to be hit too. The government expects close to Rs 60,000 crore shortfall this fiscal, sources told CNBCTV18.
Adding, the key reasons behind the indirect tax shortfall include: “poor goods and service tax (GST) collections, the current collections are below the monthly average. Slowdown in consumption and production and reducing number of taxpayers filing returns.”
Finance Minister Nirmala Sitharaman on Sunday had told CNBC-TV18 that she is not revising any of her budget targets now and would like to take a closer look at them only when the government reviews the revised estimates, which is expected around December.