The Union Finance Ministry has announced a substantial cut in corporate tax to boost the economy.
- The government has cut corporate tax for domestic firms to 22%. This, if the firm does not avail any other tax sops.
- By adding all the surcharges, the overall corporate tax now stands at 25.17%. This is a fall from the current 34.94%.
- The tax cut puts India at par with Asian peers.
Boost To New Manufacturing Units
- In a fillip to new manufacturing units that will be set up between October 1, 2019, to March 31, 2023, the effective tax rate will be 17.01%.
- Currently, such firms that Make In India have to pay income tax of 25%, including surcharges the effective tax rate is 29.1%.
- These firms are also exempt from MAT.
- The Finance Ministry also rolled back the enhanced surcharge on Foreign Portfolio Investors (FPIs) that was announced during the budget.
- Also, the Minimum Alternate Tax (MAT) has been reduced from 18.5% to 15% for all businesses. With this move, the government is set to lose Rs. 1,45,000 crore per year as forgone revenue.
- The government took ordinance route to bring in the changes and has amended the Income Tax Act of 1961 and the Finance Act of 2019.
- Some experts believe that the measure will lead to government overshooting its fiscal deficit target.
- They say that the fiscal deficit may balloon to 4.1% of the GDP.
- But, the Finance Ministry is confident that it will achieve its target of 3.3% fiscal deficit for the year.
- Experts also believe that mere reduction in levies will not lead to private sector investments as there is a lack of demand in the economy.
- Under subdued demand conditions, the private sector will invest only when the demand is revived.
- Some economists are of the view that the corporate tax cuts will make domestic firms competitive globally and foreign companies may invest in the country thereby boosting private investment.
- The Ministry is of the opinion that the measures will lead to more investments and more jobs and the economic activity will revive.
Cheers From India Inc.
- India Inc. has welcomed the move by the government.
- They believe that tax cuts will lead to corporate savings which will further be used to increase investments and generate jobs.
- The measures come at the right time and are expected to help the economy to get back to the growth path.
Courtesy: The Hindu
Courtesy: The Hindu