Union Budget 2018: Corporate Tax Cut With Riders Maybe On The Cards, Arvind Virmani Says

The government will stick to fiscal prudence and slash corporate tax rate to 25%, says Arvind Virmani.

Closeup of a calculator, and a financial statement. (Image: Wikimedia Commons)
Closeup of a calculator, and a financial statement. (Image: Wikimedia Commons)

The government may announce a reduction in corporate tax rates in Thursday’s budget, while choosing to delay the removal of exemptions and incentives for corporate taxpayers.

That’s the word coming in from Arvind Virmani, former Chief Economic Adviser to the Government of India, citing a “long overdue commitment.” Finance Minister Arun Jaitley had in 2015-16 budget speech announced the reduction of corporate tax to 25 percent from 30 percent currently over a span of four years, along with the removal of various tax exemptions that account for a majority of tax disputes.

“It [reduction] is very likely to occur, however the elimination of exemptions and reductions with a cut to 25 percent may or may not happen,” said Virmani in a conversation with BloombergQuint today.

The Indian government’s Economic Survey for 2017-18, released yesterday, suggested a pick-up in growth and a pause in general fiscal consolidation for the coming year. Virmani, however, said that the government will try “really hard” to stick to its fiscal targets, given the backdrop of a buoyancy in tax collections and the government’s aggressive disinvestment targets.

Another factor that stood out for Virmani in the Economic Survey was the government’s recognition of a need for judicial reforms. Chief Economic Adviser Arvind Subramanian stressed on the need to reduce backlog of pending cases in Indian courts as the next frontier on ‘ease of doing business.’

Virmani said that overtime people have separated economics from the judicial and police structure, while the latter fundamentally provides the level on which the economy is based. “The market structure that we assume depends on the rule of law, and not many of our economists focus on that area,” he added.

On expectations from the Union Budget 2018, to be presented on Thursday, Virmani said that he hopes for three things in particular:

  • The government to try very hard to stick to its fiscal deficit target, as it is known for its credibility.
  • Some elements of tax reforms to start seeping into the direct taxation system.
  • Reforms on the welfare front, such as the government resorting to integrating subsidy and welfare schemes, instead of adopting populist measures. “This could be a big bang on the political and economic reforms,” he said.