In a move to spur growth and private investment, finance minister Nirmala Sitharaman on Friday announced a cut in corporate tax rate to 22% for companies that don’t avail any tax incentive. The effective tax rate for these companies after surcharge and cess will be 25.17%.
In order to attract fresh investment in manufacturing and provide a boost to ‘Make-in-India’ initiative, the government announced that manufacturing companies incorporated after October 1 will have the option of paying income-tax at the rate of 15%. The effective tax rate for these companies will be 17.01% inclusive of surcharge and cess. Also, such companies shall not be required to pay minimum alternate tax (MAT).
India Inc. and financial experts believe the move will help provide a level-playing field to local manufacturers and boost the manufacturing sector. Here’s what some of them say about the government’s decision:
Jatin Dalal, chief financial officer, Wipro
It’s a huge boost to corporates and will enhance India’s position as a competitive destination for fresh foreign investments. ‘Make in India’ now gets a fresh impetus with reduced rates of corporate income tax. MAT (minimum alternate tax) rate reduction is also a bold move. Clarification on grandfathering of buyback tax on inflight buyback programmes as of July 5, 2019, is a comforting outcome. This would go a long way in restoring confidence in the market and nudge companies to make fresh investments.
Kamal Nandi, business head and EVP, Godrej Appliances, and president, CEAMA
This is a positive move for the Indian economy and will help provide level-playing fields to local manufacturers. It is expected to boost the economy, and, especially, the manufacturing sector is likely to get the impetus.
Gopichand P. Hinduja, co-chairman, Hinduja Group
It shows the government is well seized of the economic challenges facing all of us. I only wish more such steps, which government is already contemplating, could be taken together in one go like tapping NRI investments, with this one so as to create deeper impact, instill more confidence in the economy and among corporates. This would certainly help put businesses back on track, generate more employment and most importantly, keep India as the principal investment destination amidst global slowdown.
Ajay Piramal, chairman, Piramal Group
With this, the government has signaled that it is listening to the industry and is willing to embrace it as a partner for the progress of the country. We are certain that this big bang reform will kick-start the economy. Surplus funds available to companies will be invested in capex and talent. The NBFC sector will save between ₹250 crore-₹300 crore that can potentially be redeployed as loans. In a climate of global slowdown, this reform will make India an attractive destination for FIIs and long-term investors. The announcement has brought parity to India’s corporate tax rate compared to that of advanced markets thus making it very competitive.
Shekar Viswanathan, vice-chairman and whole-time director, Toyota Kirloskar Motor
This is a welcome structural change and comes as a great respite to corporates. This positive move from the government of India will lead to further investments in the country as well as create more business opportunities. The ‘Make in India’ initiative will thus get further impetus.
As far as the automotive sector is concerned, we believe that on a mid- to long-term basis, the government should consider the merits of moving towards a carbon (fuel efficiency)-based GST taxation policy which will not only lead to huge fossil fuel savings but will also help in lowering emissions.
Anand Kripalu, managing director and CEO, Diageo India
We welcome the bold changes introduced by the government, which will strengthen India Inc’s role as the nation’s job and wealth creators. The increased tax savings will boost cash flows, spur domestic and foreign investment, provide competitive tax rates and act as an economic driver towards ‘Make in India’.
Dinesh Kanabar, CEO, Dhruva advisors
The industry demand was for a tax rate of 25%. The FM has proposed 20-plus surcharge. The reduction of MAT, partial rollback of buyback tax are also very welcome moves. This should be a big booster for Make in India.
Hitesh. D. Gajaria, partner and co-head of tax, KPMG in India
Hugely positive step, this will conserve much-needed funds in the hands of corporates to turbocharge investments leading to more employment and capacity creation. This move will also reduce litigation on contentious issues around incentives. Next follow-through step eagerly awaited are moving the tax on dividends to shareholders and freeing companies from the Dividend Distribution Tax Burden.
Naveen Aggarwal, partner and chief operating officer, tax, KPMG in India
Major shot in the arm for the Indian economy courtesy the FM’s announcements of rationalising corporate tax rate to 22% (minus any other incentives/concessions) and for new manufacturing companies set-up post-October 2017 to 15%. In the face of global headwinds, this puts India right up on the map as a forward-looking, business-friendly and competitive operating environment. Increased surcharge to not apply on capital gains on listed securities and derivatives in the hands of FPIs. This will provide much-needed liquidity to the capital markets and is expected to turnaround their freefall.
Motilal Oswal, CMD, Motilal Oswal Financial Services
We do believe that we need fiscal stimulus to get out of this slowdown and monetary policy alone could not do that. Hence, this move is very good for the country and mark.
Foram Parekh, fundamental analyst, Indiabulls Ventures
The corporate tax cut will expand the bottom line of the companies and the profits will be utilised to start the CAPEX cycle. We further expect the RBI to slash at-least 50 bps rate cut till March 20 thereby infusing growth in the system. We believe GDP to bottom out in Q1 and can clock in a 6.5% GDP growth rate in FY20. With all the reforms galore taken to date by our FM in the right direction, we expect Nifty to touch 12,000 levels by December 19.
Vikas Vasal, partner and national Leader – Tax, Grant Thornton India
The government has addressed the key demand of businesses to align India’s corporate tax rate with the current economic reality where most large economies like the U.S. and the UK have taken similar measures to attract capital and investments. To give credit to the government, it is heartening to note that these rates have been announced now and that the government did not wait for the next budget. Hopefully, this should be followed by a similar tax rate reduction for individuals and other taxpayers soon as the festive season approaches. This would leave more money in the hands of the taxpayers, which in turn would boost overall demand and consumption in the economy.
Hemendra Kothari, Chairman, DSP Investment Managers
The move will structurally enhance corporate profitability, encourage Indian businesses to become globally competitive & also attract FDI capital to set up a manufacturing base in India and capitalise on the opportunities opening up due to shift in trade.