Business Companies 21 Sep 2019 Big bang reform: Tax ...

Big bang reform: Tax on companies cut by 10 per cent

FC INVESTIGATIVE BUREAU | RITWIK MUKHERJEE
Published Sep 21, 2019, 1:03 am IST
Updated Sep 21, 2019, 2:09 am IST
Rate on par with other Asian countries; super rich tax dropped.
Nirmala Sitharaman.
 Nirmala Sitharaman.

Kolkata: Under mounting pressures of an acute demand dearth, investment slowdown, six-year low economic growth and 45-year high unemployment rate, the Centre on Friday slashed corporate tax rates for companies by almost 10 per cent to 25.17 per cent. The fresh fiscal measures announced by finance minister Nirmala Sitharaman come two-and-half-months after she presented her maiden Budget.

The corporate rate structure in India now stands at par with Asian peers like China, South Korea and Indonesia.

 

Interestingly, companies there pay 25 per cent tax, while those in Malaysia pay 24 per cent. Only Japan has a higher tax than India at 30.6 per cent. Hong Kong has the lowest corporate tax rate of 16.5 per cent while Singapore has 17 per cent rate and Thailand and Vietnam levy 20 per cent tax on companies.

The fresh dose of fiscal measures, which have gone down well with industry and banking circles, will cost the government Rs 1.45 lakh crore in revenue annually. It may potentially derail the country’s fiscal deficit roadmap.

The new structure will be put into practice from April 1, 2019, on the condition that companies will not avail any other incentive or concession such as the tax holiday enjoyed by units in SEZ and accelerated depreciation. The effective tax rate for existing units, after considering surcharges and cess such as Swachh Bharat cess and education cess — which are levied on top of the income and corporate tax rates, will be 25.17 per cent as compared to 34.94 per cent now. For new units it will be 17.01 per cent as opposed to 29.12 per cent now.

 

The FM hoped that the latest measures will promote growth and investment. She said the government is conscious of the impact this will have on fiscal deficit, but will reconcile the numbers.

No minimum alternate tax for companies
She said that no tax will be charged on share buyback by listed companies that announced such a move prior to July 5.

Also, the super-rich tax by way of enhanced surcharge on income, as announced in the July 5 Budget, will not apply to capital gains arising on equity sale or equity-oriented funds liable to securities transaction tax (STT) with a view to stabilise the flow of funds into capital markets.

 

In the new scheme of things, the companies will not have to pay minimum alternate tax (MAT). Any company which does not opt for concessional tax regime and avails tax exemptions or incentives shall continue to pay tax at pre-amended rates. “These companies can opt for concessional tax regime after the expiry of tax holiday or exemption,” she said.

To provide relief to companies which continue to avail exemptions and incentives, rate of MAT has been reduced from existing 18.5 per cent to 15 per cent. The mandatory two per cent CSR spending will include government, PSU incubators and public-funded education entities.

 

India’s business and banking circles were prompt in lapping it up. Anil Agarwal, executive chairman, Vedanta Resources, said that the reduction of corporate taxes, including surcharges and cess, will significantly boost the economy and will provide a huge impetus for the manufacturing and infrastructure sector. “We are confident this step, in coming days, will boost economic growth so that GDP can attain its true potential of 8-9 per cent. The journey looks extremely bright for creation of thousands of jobs in India and helping the country to march towards the $5 trillion-mark,” he said.

 

SBI chairman Rajnish Kumar, said: “The large reduction in corporate taxes across the spectrum of all companies is perhaps the boldest reform in the last 28 years. Such a rate cut will boost corporate bottomline, facilitate a reduction in product prices. Additionally, the move to incentivise setting up new manufacturing units in India comes at the most opportune time for foreign companies who could be actively looking for opportunities to invest globally. This move could also materially lead to India effectively integrating with the global supply chain and a boost to the Make in India campaign.”

 

Uday Kotak too echoed similar positive sentiments. “Reducing corporate tax rate to 25 per cent is big bang reform. It allows Indian companies to compete with lower tax jurisdictions like the US. It signals that our government is committed to economic growth and supports legitimate tax abiding companies,” said Kotak.

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