Finance Minister Arun Jaitley would do well to introduce slabs in corporate tax, similar to personal income tax, in his upcoming Budget later this month, non-banking finance company (NBFC) Capital First told NDTV.
"The corporate structure also will need a slab structure, whereby corporates above certain income tax above a certain income start paying the 30 or 33 per cent. But the small entrepreneurs if they were allowed to pay 5 per cent, 10 per cent, 15 per cent tax in grades, say for example somebody earning less than a crore can just pay 10 per cent tax, I think it will make a huge difference to the performance of small entrepreneurs in the country," V Vaidyanathan, chairman and managing director, Capital First said.
The corporate tax rate in India for domestic companies is 30 percent but after adding cess and surcharge it comes to a gross rate of 33.99 percent. Foreign companies are taxable at 40 percent. Corporate tax rates in India are believed to be on the higher side, according to experts.
Currently, individuals under 60 years of age don't have to pay any taxes for income up to Rs 2.5 lakh, between Rs 2.5- 5 lakh the tax rate is at 10 per cent, for income between Rs 5-10 lakh it is 20 per cent and above Rs 10 lakh it's 30 per cent.
The slab structure in corporate tax will not only help smaller companies save tax but they would also start reporting incomes accurately, thus bring more entities under the tax purview, Mr Venkatraman said.
"As far as the large corporates are concerned, the large banks, the large corporates and so on, they do pay the taxes and it's only the small entrepreneurs who tend to evade it and not show all the income in the book," he said.
"And one of the critical needs they say small entrepreneurs don't get financing in India, that will get addressed because they will become bankable. So this is one key thing I'm expecting from the budget."
Capital First does not expect the Budget to be a populist affair with many sops. In fact, it says even if it is remotely populist it would be extremely detrimental to the economy. "If the Budget is being pushed even remotely towards populism I think that will be a big red herring. I think if the government stays its course, keeps the budget responsible, then and only then RBI will oblige in terms of rate cut," he said. Personal income tax rates are unlikely to be touched, Capital First believes.