PANAJI:
Indian Finance Minister Nirmala Sitharaman announced a slew of measures on Friday to revive sagging investment in Asia’s third largest economy including a cut in corporate taxes.
Sitharaman told a news conference that the effective corporate tax rate will be lowered to 25.75% from 30%, which she said would be at par with Asian peers.
All domestic companies to be allowed to pay corporation tax at the rate of 22% (effective rate 25.17% including cess and surcharge). This would be subject to the condition that these companies do not avail of any tax incentives or exemptions.
Enhanced surcharge introduced by the Finance Act 2019 shall not apply to capital gains arising on sale of equity share in a company/unit of equity-oriented fund or unit of business trust liable for securities transaction tax, the FM announced.
Moreover, no Minimum Alternative Tax (MAT) would be imposed on these companies.
The minister announced sharp cuts in corporation tax among a series of announcements. Sitharaman said the total revenue forgone on account of today's measures would be Rs 1.45 trillion per year.
“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,'' said Deepak Parekh, Chairman, Housing Development Finance Corporation.
“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,'' he added
However, Dheeraj Singh, head of Investments & Fund Manager – Fixed Income, Taurus Asset Management said .“The tax reliefs announced are likely to put upward pressure on the fiscal deficit needing a revision in the government’s borrowing target for the year. This would likely lead to upward pressure on bond yields but this could get mitigated if RBI chips in with an aggressive policy rate reduction”.
The measures announced by the FM are-
-Any new domestic manufacturing company, incorporated on or after October 1, 2019, will be allowed to pay corporation tax at the rate of 15% (effective rate 17.01%). No MAT will be imposed on these companies either. This will be subject to the condition that the company does not avail of any tax incentives or exemptions and commences production by 31 March, 2023.
-To provide relief to companies that continue to avail of exemptions and incentives, the rate of MAT has been reduced from 18.5% to 15%.
–Enhanced surcharge shall not apply to capital gains on sale of any securities, including derivatives, in the hands of Foreign Portfolio Investors (FPIs)
–Enhanced surcharge introduced by the Finance Act 2019 shall not apply to capital gains arising on sale of equity share in a company/unit of equity-oriented fund or unit of business trust liable for securities transaction tax, the FM announced.
– Relief to listed companies which have already made a public announcement of buyback before 5th July 2019. No tax on buyback of shares in case of such companies.
-CSR 2% spending to include government, PSU incubators and public funded education entities, IITs