Finance minister to increase effective tax rate for some sectors

Corporates effectively paying tax less than 24 per cent  may lose some of their exemptions soon with the finance ministry keen to ensure that all sectors of industry paid taxes at an effective rate of at least 24 per cent or more.

Currently, the normal rate of corporate tax is 30 per cent but with various exemptions, tax expenditures and sops, the average effective rate would be 24 per cent. As per the documents of budget 2012-13 of 74 sectors, there are sectors whose effective rate is less than this average.

Addressing the media following a review meeting with chief commissioners of income tax and the director general (investigation),  finance minister P Chidambaram said the effective corporate tax rate was 24 per cent and many industries were below the average. The government would have to see whether they were tax compliant and whether within the present law they were paying taxes that they should be paying.

He added even if the average were to go up by 2 per, according to back of the envelope calculations it would yield Rs30,000 crore.

Though he refused to divulge the name of sectors where the effective rate was less than the average, he assured that it was important that the matter was approached in  a systemic way rather than in a hit and run manner.

By focussing on certain specific sectors and expanding the tax base, Chidambaram aims to achieve 12 per cent tax-GDP ratio. The ratio is down to 10.1 per cent in 2011-12 from a high of 11.9 per cent in 2007-08.