The Centre is unlikely to reduce the corporate tax rate from the existing 35 per cent in Budget 2003.

The dividend tax of 10 per cent is, however, likely to be done away with to give a fillip to the capital markets.

According to finance ministry analysis, reconciling the conflicting demands for rationalisation in rates suggested by the Kelkar task force and the Rajnath Singh committee, would have an adverse impact on the exchequer.

Accepting all the sugestions of the Singh committee without doing away with exemptions would result in a revenue loss of Rs 22,000 crore (Rs 220 billion) annually, revenue department officials said.

The ministry has, therefore, decided that it would be prudent not to touch the corporate tax rate for the third year running.

This is also because the ministry is not sure about the impact of abolishing the dividend tax. In Budget 2002, former Finance Minister Yashwant Sinha had changed the incidence of dividend tax from companies to individuals.

In spite of the Kelkar report, the impact of eliminating the dividend tax on revenue, is not very clear.

The task force has calculated that while eliminating the tax on dividends would result in a loss of only Rs 1,500 crore (Rs 15 billion), removal of the minimum alternate tax and exemptions allied to the reduction in the corporate tax rate would result in a revenue gain of Rs 10,762 crore (Rs 107.62 billion).

In fact, the revenue nuetrality of the Kelkar report is based on this assumption, on which the revenue department is as yet unwilling to take a call.

The need to reduce the corporate tax rate to the maximum income tax rate rate has been made not only by the Task Force, but also the earlier Shome committee, as well as the NK Singh committee on foreign direct investment.

However, the finance ministry position is based on the argument that corporate tax rates across a large cross section of countries are about 34 per cent and so the domestic rates are not high.

The annual collection from corporate tax is estimated at Rs 48,616 crore (Rs 486.16 billion) for the current fiscal year. The comparable figure from 2001-02 was Rs 39,059 crore (Rs 390.59 billion).