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Business News/ Politics / Policy/  Jayant Sinha says tax holidays to stay till exemptions phased out
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Jayant Sinha says tax holidays to stay till exemptions phased out

Centre to release roadmap to do away with exemptions in 2015-16, start implementing measures from 2016-17

Jayant Sinha says the change is going to come in stages. Photo: Ramesh Pathania. (Ramesh Pathania. )Premium
Jayant Sinha says the change is going to come in stages. Photo: Ramesh Pathania.
(Ramesh Pathania. )

New Delhi: Tax holidays given by the government to various sectors will run their course when the government phases out corporate exemptions, minister of state for finance Jayant Sinha said in an interview.

“That (tax holidays) is all grandfathered. This will be prospective. We don’t believe in retroactive tax legislation and retroactively changing things," Sinha said. “We have made you a promise that you will get tax holiday for five years, you will get tax holiday for five years. We will stick to our promises. Going forward, however, we are going to change it."

“The change is going to come in stages. We are going to say that this year we will take these exemptions away and, therefore, we are going to reduce tax rates by this much," he said. “Eventually, in four years, this will be fully implemented. We will start from the next budget."

Under the so-called grandfather clause, a tax holiday will remain in force for existing investors for the duration it has been offered.

The government will release a roadmap to do away with exemptions in 2015-16 and start implementing the measures gradually from 2016-17.

Tax holidays usually mean concessions, lower levies or no tax for a particular sector. India gives tax holidays to various sectors including power generation, distribution and transmission and special economic zones and telecom. Tax holidays are also given for setting up manufacturing units in the North-East and some special category states like Jammu and Kashmir and Himachal Pradesh.

Finance minister Arun Jaitley, in his budget speech on 28 February, had highlighted the government’s intention to gradually phase out exemptions to reduce litigation and discretion but at the same time reduce corporate tax rate to 25% from 30% over the next four years.

“The basic rate of corporate tax in India at 30% is higher than the rates prevalent in the other major Asian economies, making our domestic industry uncompetitive. Moreover, the effective collection of corporate tax is about 23%," he had said. “We lose out on both counts, that is, we are considered as having a high corporate tax regime but we do not get that tax due to excessive exemptions."

According to the revenue foregone statement in the budget, the revenue impact of major incentives given to the corporate sector, including tax holidays and accelerated depreciation, in the current fiscal is more than 62,000 crore.

“Tax holidays already granted are a key component of a viability analysis done by a manufacturing unit before setting up a business," said Rahul Garg, leader of direct tax practice at consultancy firm PricewaterhouseCoopers. “So those should be maintained till the sunset clause."

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Published: 06 Mar 2015, 12:13 AM IST
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