STATE TIMES NEWS Panaji: Battling a six-year low economic growth and a 45-year high unemployment rate, the government on Friday slashed corporate tax rates for companies by almost 10 per cent to 25.17 per cent to bring them at par with Asian rivals such as China and South Korea, as it looked to boost demand and investments. Two-and-half-months after presenting her maiden Budget, that was hailed as “development-friendly” and “future-oriented”, Finance Minister Nirmala Sitharaman announced fiscal measures that will cost the government Rs 1.45 lakh crore in revenue annually and may potentially derail the country’s fiscal deficit roadmap.
In the fourth phase of post-budget economic stimulus measures, Sitharaman cut base corporate tax for existing companies to 22 per cent from current 30 per cent; and for new manufacturing firms, incorporated after October 1, 2019 and starting operations before March 31, 2023, to 15 per cent from current 25 per cent.
This will be effective on the condition that these companies will not avail any other incentive or concession such as tax holiday enjoyed by units in Special Economic Zones (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 new tax structure is effective from April 1, 2019, and will bring Indian corporate tax rate at par with Asian peers in a bid to attract investments.
Companies in China, South Korean and Indonesia 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.
Sitharaman said the latest measures will promote growth and investment, but sidestepped questions on its impact on fiscal deficit.
“We are conscious of the impact all this will have on our fiscal deficit, and will reconcile the numbers,” she said.
The government had budgeted Rs 16.5 lakh crore as tax revenue in fiscal to March 31, 2020. Her budget had targeted a 3.3 per cent fiscal deficit of GDP in the 2019-20 fiscal year.
Calling it a bold move, RBI Governor Shaktikanta Das welcomed the announcement.
Sitharaman also said no tax will be charged on share buyback by listed companies that announced such a move prior to July 5.
Also, super-rich tax by way of enhanced surcharge on income, 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 stablise flow of funds into capital markets.
Also, the companies will not have to pay minimum alternate tax (MAT).
She said 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 corporate social responsibility (CSR) spending to include government, public sector undertaking (PSU) incubators and public-funded education entities.
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© 2017 State Times Daily Newspaper