A government panel has recommended cutting the corporate tax rate to 25% from 30% for all companies and scrapping surcharges on tax payments, an official said on 20 August 2019, part of a major overhaul of the six-decades old tax act. India has one of the highest corporate tax rates in the world even after Finance Minister Nirmala Sitharaman this year cut the rate to 25% from 30% for companies with annual sales of up to Rs 400 crore.
  1. The panel headed by Akhilesh Ranjan, a member of the central board of direct taxes, delivered its report to Sitharaman. It was not made public and a finance ministry spokesman declined to comment on its contents. A finance ministry source who reviewed the report said it recommended an overhaul of the Income Tax Act.
  2. The committee has said the government should move away from surcharges on income and reduce corporate tax to 25%.
  3. India imposes a 30% corporate tax rate on domestic companies and 40% on foreign firms, plus a 4% health and education surcharge on total tax payments.
  4. It also charges a surcharge of 12% for domestic companies and 5% for foreign companies if their taxable income exceeds 100 million rupees, according to Deloitte, a global tax consultancy.
  5. The panel was formed in 2017 and tasked with bringing the income tax law in line with other countries, and incorporating best practices according to the needs of the economy.
  6. The finance ministry will study the report before taking a decision on its recommendations, the ministry source said, adding that they may be included in the government's 2020/21 budget proposals. 
What is Corporate Tax?
  1. A corporate tax is a levy placed on a firm's profit by the government. The money collected from corporate taxes is used for a nation's source of income. 
  2. A firm's operating earnings are calculated by deducting expenses including the cost of goods sold (COGS) and depreciation from revenues. 
  3. Then, tax rates are applied to generate a legal obligation the business owes the government. Rules surrounding corporate taxation vary greatly worldwide, but they must be voted upon and approved by a country's government to be enacted.