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Cos set to lose tax gains; CBDT to end corp tax exemptions

In a major blow to India Inc, the Central Board of Direct Taxes (CBDT) on Friday released a roadmap for phasing out corporate tax exemptions. It will phase out profit and investment-linked and area based tax deductions for companies.

The CBDT has also said it will not make any modifications to sunset date in income tax and there will be no weighted tax deduction from FY18. “The provisions having a sunset date will not be modified to advance the sunset date. Similarly, the sunset dates provided in the Act will not be extended,” the CBDT said.

The proposal is to phase out Section 32, Section 35 AC and Section 35 AD.

This is in line with Finance Minister Arun Jaitley’s proposal to phase out exemptions and bring the corporate tax rate lower to 25 percent in four years.

CBDT has also proposed to provide sunset date of March 31, 2017, for development of SEZs, exports from SEZ units and commercial production of gas blocks and NELP. The CBDT has said that this (sunset date) will impact Section 80-IA, Section 80-IAB, Section 10AA and Section 80-IB.

The CBDT has sought comments on the proposed changes within 15 days.

The minister of state for finance Jayant Sinha said that the move is aimed at simplifying and streamlining corporate tax exemptions. He is also confident that the government will stick to the fiscal consolidation roadmap.

Reacting to the news, Satya Poddar of EY told CNBC-TV18 that activity profit will be taxable irrespective of sunset clause.

He also feels that the government is going about it methodically as opposed to rushing in with a change in the sunset clause.

“Overall, the selective incentives are a source of complexity and leads to lot of disputes,” he said. The government has been saying that most of the disputes relate to these selective incentives, he added.

However, Mukesh Butani, chairman, BMR Advisors, is not too positive as far as the move is concerned and said if the corporate tax rate is to be reduced in four years, then the phase out should also be made over a period of four years. “I personally feel you cannot take a view that all exemptions should be phased out,” he said. He also hopes that the final proposal will work out to the benfit of tax payers as well because there shouldn’t be a situation wherein just because the tax incentive is gone, there is a slowdown in investment as well.

He also said tax collection will suffer a deceleration in immediate years.

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