Corporate tax rate in DTC quite high, says L&T

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Corporate tax rate in DTC quite high, says L&T

The Union Cabinet on Thursday approved the Direct Taxes Code (DTC) Bill to simplify the country's archaic direct tax laws. In an exclusive interview with CNBC-TV18, YM Deosthalee, Wholetime Director and CFO, L&T, speaks about the Bill.

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Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » RELATED NEWS Corporate tax fixed at 30% in DTC Bill: Sources No clarity on capital gains tax in DTC Bill: Expert Has government compromised too much on DTC Bill? Proposed MAT rate of 20% a dampener: Tax experts Union Cabinet approves Direct Taxes Code Bill ALSO READ See latest News about Larsen See previous management interviews See what other Experts & Brokerages are saying about Larsen Larsen BSE | NSE 30/05/12 Are Mutual Funds betting on Larsen?

The Union Cabinet on Thursday approved the Direct Taxes Code (DTC) Bill to simplify the country's archaic direct tax laws. The government will now seek approval on Monday from Parliament where the bill is expected to go through as the measure enjoys broad political support.

In an exclusive interview with CNBC-TV18, YM Deosthalee, Wholetime Director and CFO, L&T , speaks about the Bill.

Here is the verbatim transcript of his interview with CNBC-TV18's Sonia Shenoy and Latha Venkatesh. Also watch the accompanying video.

Q: The direct tax code (DTC) was passed by the Cabinet and what we know of it looks a much diluted version from what we had got to see when the first draft was out. Are you disappointed or do you still think it is an improvement over the current tax regime?

A: Let me start with a disclaimer. What we have seen is from the newspapers and from the television channels. There is no official document available for us to comment. So, our comments are based on media reports.

Overall, it appears to be a bit disappointing. There are two-three angles. One, we were talking of 25% corporate tax rate, which is pegged at 30% now. I am also a bit concerned on MAT, 20%. Then on the personal front also, individual fronts also, what was proposed in the original DTC and what is coming out now it appears to be a much diluted version.

Q: The, overall, theme of the paper was that profit related incentives will be withdrawn, tax sops, and they will be replaced with investment related tax sops. Are you happy with that theme, though ofcourse as you say not much has been revealed from the newspapers or from what has been leaking?

A: If we look at the corporate tax rates, there are two aspects. One is the overall tax rate, which is proposed to be at 30%, but you have to also consider the dividend distribution tax, which is 17%. If you take both these into account, it is still at a higher level.

The other thing is we have to also look at this from the other angle and that is withdrawal of all the exemptions. All the exemptions related to investments, exemptions related to new businesses backward areas and so on and so forth, including the donations, 80G, all are proposed to be withdrawn. So, if you link these two together, I think the corporate tax rates still appears to be high to me. There are many countries today, which operate at less than 25% and I think that was what was proposed at the time of original introduction of DTC. So, it is a bit surprising that on one hand we are talking of 30% and continuation of the dividend distribution tax and on the other hand, withdrawal of the benefit. So, the package appears to be a little disappointing.

As I said earlier we are disappointed with the MAT because I do not think there is anything minimum in this now. If you are talking of overall tax rate of 30% and if the minimum tax rate is 20%, it is definitely a discouragement for infrastructure companies who are going to invest a lot of money into building India's infrastructure. So, I think these rates need to be relooked at. If that is the correct rate, I think it is too high. At the same time, there is a welcome change, it is now on profits and not on lost assets because that was even disastrous, if you had continued with the original provision. So, on one hand, taxing profits is okay, but the rate is still very high.

So, I think the overall package as it has come out doesn't seem to be very attractive and also it doesn't make any major changes. On the personal front, what was said earlier was Rs 25 lakh kind of slab at the maximum rate 30%, at that level, which has been brought down considerably again. It is just a minor change as compared to the current tax rates.

Q: Can you give us your comment on the tax sops to special economic zones (SEZs) because originally the tax swaps with SEZs were withdrawn and now there is an indication so they have been allowed tax swaps for two more years? According to you, would this be a fair deal?

A: One thing, what we understand, is there were two types of tax sops for SEZ. One was for the developers and other one was for the users. What I understand is that the tax sops for developers will continue for a couple of years. We need to get some more inputs into this as to what is the sanctity for two years.

We do believe that Commerce Ministry, for example, is strongly advocating for continuation of this SEZ benefits. What we feel is that if we are continuing for two years for developers, even the users' benefit should also be continued. There is no rationale for withdrawing the benefits, which are available for those who use the SEZ facilities. I think two years is too short period.