Corporate Tax Cut: Highlights and expert’s viewpoint

FM, Nirmala sitharaman press conference on corporate tax cut
FM, Nirmala sitharaman press conference on corporate tax cut

Today, in a press conference Finance Minister Nirmala Sitharaman announced a big move by reducing corporate tax. Nirmala Sitharaman told in a news conference that the effective corporate tax rate would be lowered to 22% from 30%.

Most Asian countries are now moving towards the lower corporate taxes to survive in the trade-war. India takes a move forward and reduces corporate tax to compete for the global corporate average taxes of 23%. The finance minister announcement is a big booster for the Indian economy. Economists today on media are talking that this is the big move to boost the Indian economy after 1991.

Highlights of Announcement made by Finance Minister

  • Nirmala Sitharaman told a news conference that the effective corporate tax rate would be lowered to 22% from 30%.
  • Firms that do receive incentives or exemptions will see their tax rate cut to 25% from 35%.
  • The domestic company incorporated on or after 1st October 2019 will pay income tax at the rate of 15 percent.
  • The effective tax rate for new manufacturing companies will be 17.01% inclusive of all surcharge and cess. 
  • The revenue foregone on reduction in corporate tax and other relief measures will be Rs 1.45 lakh crore annually.
  • Companies opting for a 22% income tax slab would not have to pay minimum alternative tax (MAT).
  • Not levy enhanced surcharge introduced in Budget on capital gain arising from the sale of equity shares in a company liable for securities transaction tax (STT).
  • The super-rich tax will not apply on capital gains arising from the sale of any security including derivatives in hands of foreign portfolio investors (FPIs).
  •  Listed companies which have announced a buyback of shares before July 5, will not be charged with super-rich tax.

The move that good for startups:

The companies have now also been permitted to use their 2% CSR spends on incubation, IITs, NITs, and national laboratories.

Political, Industry and Research experts viewpoints on Corporate tax cut

“The step to cut corporate tax is historic. It will give a great stimulus to #MakeInIndia, attract private investment from across the globe, improve competitiveness of our private sector, create more jobs and result in a win-win for 130 crore Indians.” Narendra Modi on twitter @narendramodi

 “The announcements in the last few weeks clearly demonstrate that our government is leaving no stone unturned to make India a better place to do business, improve opportunities for all sections of society and increase prosperity to make India a $5 trillion economy,” Prime Minister, –Narendra Modi on twitter @narendramodi

“Your 2019 budget increased #CorporateTax to 30% despite many objections. Today after yet another U-Turn by the FM, you pat yourself on the back & call the move historic-The only thing historic is a govt that refuses to accept responsibility for destroying a thriving economy. Congress @INCIndia https://twitter.com/INCIndia/status/1174978203229675522

“I would like to thanks FM @nsitharaman for announcing cut to the corporate tax rate for all domestic companies which has been reduced to 22% from the current which was nearly 35%” @PiyushGoyal on twitter

“2% of CSR spend can now be used for doing Research & Development, so incubators funded by Central or State Govt., PSUs or any other agency of Govt of India join hands and invest your CSR funds for R&D: @PiyushGoyal on twitter

“With effect from financial year 2019-20 … any domestic company has an option to pay income tax at the rate of 22%, subject to condition that they will not avail any exemption,” Nirmala Sitharaman Finance Minister.

“Many firms are trying to relocate out of China given the trade war. This means it is a window of opportunity for India,” Nirmala Sitharaman added.

Uday Kotak, CEO of Kotak Mahindra Bank “Reducing corporate tax rate to 25% is big bang reform. Allows Indian companies to compete with lower tax jurisdictions like the U.S. It signals that our government is committed to economic growth and supports legitimate tax abiding companies.A bold, progressive step forward.”

The Reserve Bank of India (RBI) Governor Shaktikanta Das “This is a very bold measure. These tax rates bring us closer to the rates of all the emerging economies in this part of the world. There’s a lot of competition between Vietnam, Philippines and India to attract international investments,”

“Corporate Tax Rate Cut From 30% To 25.2% To Spur Growth- this is a great move which will firmly revive growth and investment. My hats off to FM Nirmala Sitharaman for this bold but most needed move,” Kiran Mazumdar Shaw, the chairman of Biocon, speakin with NDTV.

“It will certainly help the high-tax paying companies. Tax rates come down. Money available for reinvestment and paying a better dividend will be there. You can plough back money and make the company stronger because only 25 percent goes in taxes. It is a great boon.” Deepak Parekh, Chairman, HDFC.

“This is an incentive to bring in more FDI. More manufacturing companies coming in will mean more jobs. It is a positive signal that we want to be on par with the other markets and do not want to overtax. We have also made FPI attractive and hence we reduced the surcharge.” Deepak Parekh, Chairman, HDFC.

We want to come on par with other emerging economies where the tax rate is 15-25 percent. The finance minister has rightly said that if you put new investments it will only be 15 percent, which is a motivation for existing companies to start new ventures. It will also motivate manufacturing companies from abroad to come and set up ventures in India because they are used to paying 15-25 percent tax and not 35 percent. Deepak Parekh, Chairman, Housing Development Finance Corporation, Speaking with Moneycontrol

“This is a long overdue and hugely positive move by the finance minister. The new rates simplify the tax architecture and it will give a fillip to investments and jobs,” A Prasanna, head of research at ICICI in Mumbai, told Reuters.

Vedanta Chairman, Anil Agarwal, in an exclusive conversation with ET NOW said “There cannot be better day for India than what has happened today. It is amazingly bold move by Nirmala Sitharaman and the Modi government. The tax level has been brought to global level and on the top of it, incentives have been given for the new industry. This will give boost to the sentiment.”

“First of all, I want to congratulate the government and the FM for taking such a bold step. This is what we have been waiting for, I think it will kick-start the economy. I have no doubts in it,” Ajay Piramal, Chairman of Piramal Enterprise told to CNBC TV18.

“These announcements will give a major boost to the animal spirits of corporate India and will reinvigorate the manufacturing sector that has been going through a difficult phase of late. Lowering of income tax on corporates is a long standing FICCI request. With the kind of corporate tax rate cuts announced today, India now becomes a competitive market in the region with our rates similar to those prevailing in the ASEAN countries,”-FICCI Chairman Sandeep Somany said.

“the news of government lowering corporate tax has rejoiced the market, stocks rallied sharply with bank nifty posting its biggest single-day gain in 10 years. This gave rupee a big boost and $/Rs spot dropped to 70.67. The move was imperative as we are in a low demand cycle amid global idiosyncrasies.” – Rahul Gupta, Currency Research Head, Emkay Global Financial Services said.

“Government of India has announced a slew of measures that would act as a force multiplier for the flagging economic engine. The government has rolled out a red carpet that would ensure hundreds of billions of dollars of FDI & FII flows over the medium term by slashing corporate tax rate to 25 percent from 35 percent (22 percent from 30 percent without exemptions) for existing domestic companies; and an extremely attractive rate of 15 percent for new companies setting up manufacturing operations after October 01, 2019 and commencing operations before 2023,” CEO of PMS Prabhudas Lilladher Ajay Bodke.

The psychological stimulus from this ‘New Deal’ will be higher than the fiscal stimulus. Animal spirits will respond positively. The message from Dalal Street is a clear signal. Bold move indeed,”- VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

“This is huge for the market. There were few announcements that were keeping sentiments in check as FM was trying to boost market sentiments and improve the state of the economy by boosting exports, banks consolidation, re-capitalisation and so on but reducing the corporate tax rate is a big boost,”- Mustafa Nadeem, CEO, Epic Research.

“The FM delivers the right recipe to cheer corporate India. The bulls are back and the sheer velocity of the rally signifies the extent of pessimism that has been prevailing in our markets.”- S Ranganathan, Head of Research, LKP Securities.

“The government has taken a bold and proactive step to bring the much-needed tax reforms, which will boost investment and also aid to private cycle capex. The lowering of corporate tax rates will widen the tax net and gradually bring in more revenues to the government. Overall, the move will make Indian companies globally competitive, a welcome step to arrest slowdown and lift up the market sentiments,” said Sanjeev Hota, Head of Research, Sharekhan.

“Hugely positive step, this will conserve much needed funds in the hands of corporates to turbo charge investments leading to more employment and capacity creation.  This move will also reduce litigation on contentious issues around incentives.”- Hitesh D Gajaria, Partner and Co-head of Tax at KPMG.

“The effective corporate tax reductions is indeed a big supply side reform and should help spur investment cycle, which has been perpetually crippled. However, the supply side tax reforms generally have relatively longer term economic returns, albeit impact on the revenue side in the near term.” “It needs to be seen if the expected revenue forgone (Rs 1.48 tn- 0.8% of GDP) would be partly adjusted by expenditure cuts. If that happens, then it would nullify the fiscal multiplier impact to that extent. That said, I think we are in a state of coordinated policy response both by the government and the RBI,”-Madhavi Arora, Economist, Fx & Rates, Edelweiss Securities said.

“We welcome the announcement by the Finance Minister.  This was a much needed measure, and clearly demonstrates the government’s commitment to rejuvenate domestic growth. With fiscal and monetary forces working in tandem, and meaningful big bang reforms being announced, alongside monetary easing, we believe the pervasive negative sentiment that exists today has bottomed and will begin to revive. “-Sunil Sharma, Chief Investment Officer, Sanctum Wealth Management said.

“The Finance Minister has finally taken strong measures to kick start the economy. The corporate earnings had worsened in the last few quarters mainly due to the ongoing slowdown. The cut in corporate tax rate would mean more income for corporate.” –Ajit Mishra, VP Research at Religare Broking said.

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