Corporate Tax

Corporate Tax

Why In News?

  • Corporate tax collections has recently exceeded 3% of the GDP after a gap of two years in 2021-22.

Highlights

  • It is reflecting overall improvement in profitability of India Inc propelled by an increase in demand for goods and services.
  • However, the corporate tax collection is yet to surpass its five-year high of 3.51% of GDP recorded in 2018-19.
  • The net corporate tax collection in 2021-22 stood at Rs 7.12 lakh crore.
  • The Gross Domestic Product (GDP) at the current market price was Rs 236.64 lakh crore.
  • The percentage of net corporate tax to GDP worked out to be 3.01%.
  • In 2019-20, government cut corporate tax rates for new manufacturing units by almost 10% points as it looked to pep up investments.
  • The rate of Minimum Alternate Tax (MAT) too had been reduced to 15 % from 18.5 % in 2019.
  • The Minimum Alternate Tax is a strategy designed to close the income tax loophole for all businesses. The MAT makes sure that no business, even one with strong financial standing and significant revenue, may escape paying income tax, even after claiming exemptions.
  • The tax cut was reflected In the realization of corporate taxes in 2019-20, when collections fell to over Rs 5.56 lakh crore (2.77% of GDP).
  • Corporate tax is an important source of revenue for governments, as it helps to fund public goods and services such as schools, hospitals, roads, and defense.
  • Corporate tax also plays a role in redistributing wealth and addressing income inequality, as it imposes a higher tax burden on corporations that are more profitable.
  • In addition, corporate tax can also have other economic and social impacts.
  • For example, corporate tax can affect the competitiveness of businesses, as a higher corporate tax rate may make a country or region less attractive for investment compared to other jurisdictions with lower tax rates.
  • Corporate tax can also influence the location and type of businesses that operate in a jurisdiction, as businesses may be more or less likely to invest in a particular area depending on the tax environment.
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