New Delhi: The government is unlikely to cut corporate income tax rate for large companies to 25% as promised in its FY16 budget because of revenue constraints, a senior tax official said.

Tax rates can’t be cut further without a supporting mechanism to prevent evasion, said Akhilesh Ranjan, member (legislation) at Central Board of Direct Taxes. That European Union (EU) nations are considering a reduction in corporate taxes or the US has lowered the rate to 21% is not sufficient to sway India to reduce taxes, he said on Tuesday. Each country has to decide the rates according to its needs, added Ranjan, who is the convener of a task force on the new direct tax code.

That should put to rest any hopes that the new direct tax code, proposed to be ready by early next year, will see any major changes in rates. The new code, Ranjan said, will look at removing ambiguities in direct taxes rather than revising tax rates.

Currently, India taxes corporate income at 30%. But for small businesses with sales up to 250 crore and new manufacturing start-ups that do not avail of any tax relief, the rate is 25%. The largest number of corporate taxpayers are in the 25% slab, although the lion’s share of tax receipts comes from companies in the 30% bracket.

In the 2015-16 budget, finance minister Arun Jaitley had committed to lower corporate tax rate for all businesses, along with a phased withdrawal of exemptions. Tax concessions are typically given for about 7-10 years and tax cuts, if implemented earlier, will leave a hole in government finances.

Businesses are, however, keen to see a reduction in corporate tax rate for all companies, similar to what developed countries have done or are moving towards.

“It is important to consider that a tax cut cannot happen unless it’s followed by very strong anti-avoidance measures," said Ranjan, adding that countries in the EU were debating anti-avoidance directives, while the US has a base erosion and anti-abuse tax (BEAT). BEAT, which is part of the US Tax Cuts and Jobs Act signed into law in 2017, discourages Indian information technology companies, for instance, from serving their US clients from offshore centres such as in India.

Introducing new anti-abuse measures is an area that one has to tread carefully, given the checks and balances required and the complexities involved, Ranjan said. “When we are confident that these measures can yield the desired revenue, that is the point when we can think of any substantial reduction in the tax rate," he said. Ranjan was speaking at an international tax conference organized in the city by the Confederation of Indian Industry.

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