Jaitley May Lower Corporate Tax in Union Budget 2017: Deloitte

New Delhi: Finance Minister Arun Jaitley may address the transient pain of demonetisation by cutting corporate tax rates when he presents the Union Budget for 2017-18 in just over two weeks time.

Jaitley in his second Budget speech in February 2015 had announced phasing out of tax incentives with effect from April 1, 2017 and reducing the corporate tax rate from 30 per cent to 25 percent.

"Given the strict measures taken by the government in curbing black money, it may be the appropriate time to reduce the tax rate," Deloitte noted.

Corporate tax accounted for a little less than a fifth (19 percent) of the government's receipts last fiscal whereas income tax receipts accounted for just 14 percent of total receipts.

"Since the demonetisation announcement, one of the major concerns has been around the deceleration of the growth momentum in the economy emanating from a decline in demand.

This concern resonates in survey as well because 80 percent of respondents think the government would unveil measures to counteract the negative impact on demand," it said.

Deloitte further said, 40 percent of the respondents agree that complete phase-out of tax incentives is a good measure and will reduce litigation.

An equal number of participants believe profit-linked tax incentives should continue for growth sectors like infrastructure.

Interestingly, 15 percent of the respondents agree that instead of phasing out incentives for infrastructure sector, it should continue in the form of investment-linked tax incentive.

"Considering that some tax incentives will continue, one of the most eligible sectors is the infrastructure sector since the higher tax cost will impact the common man," it said.

A majority of respondents (66 percent) think that the gains from demonetisation are likely to be focused on development expenditure so as to boost investment demand in he economy.

As much as 26 percent of them are of view that the gains will be spread evenly across major expenditure areas as the government possibly tries to limit the fallout on various sectors, Deloitte said adding a 6 per cent think that the government can go in for increasing subsidy expenditure.

"Therefore, the industry clearly continues to hope for policy measures that strengthen the pace of structural reforms," it said.