New Delhi, September 20: The government’s move on Friday to slash corporate tax gave the necessary shot in the arm of India Inc with industries cutting across spectrum welcoming this huge move expecting it will provide enough impetus to the economy.
Commenting on the announcements made earlier today by Finance Minister Nirmala Sitharaman, FICCI President Sandip Somany said: “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. 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.
“The large reduction in corporate taxes across the spectrum of all companies is perhaps the boldest reform in the last 28 years! Such a rate cut will boost corporate bottomline, facilitate a reduction in product prices. Additionally, the move to incentivise setting up new manufacturing units in India comes at the most opportune time for foreign companies who could be actively looking for opportunities to invest globally! This move could also materially lead to India effectively integrating with the global supply chain and a boost to Make in India campaign!” said Rajnish Kumar, Chairman, SBI.
“The Government of India’s (Baa2 stable) decision to reduce base corporation tax to 22 per cent from 30 per cent will boost net income of Indian corporates and is credit positive. Extent of final impact on credit profiles of Indian corporates will depend on whether they utilize the surplus earnings for reinvestment in business, debt reduction or high shareholder returns,” said Vikas Halan, Senior Vice President, Corporate Finance Group, Moody's Investors Service.
The government on Friday slashed basic corporate tax rate to 22 per cent, from 30 per cent earlier, in a bid to promote growth and investment. It also reduced the tax rate for new domestic manufacturing companies to 15 per cent, and also reduced the Minimum Alternate Tax from 18.5 per cent to 15 per cent.
The government would forego total revenue of Rs 1.45 lakh crore due to reduction in corporate tax rate and some other relief measures.
The changes were made by through an ordinance to amend the Income Tax Act and the Finance Act, Sitharaman said.
According to the new provision inserted in the Income-tax Act with effect from FY20, any domestic company would have an option to pay income-tax at the rate of 22 per cent, subject to the condition that they will not avail any exemption or incentive, the Finance Minister said.
The effective tax rate for these companies shall be 25.17 per cent inclusive of surcharge and cess. Also, such companies shall not be required to pay Minimum Alternate Tax, she added.
With this announcement, Indian equity market skyrocketed. The Sensex gained 2,000 in the intra-day trade.
“It is a milestone effort towards kick starting the Indian economy and boost production. This substantial direct tax reduction will allow more liquidity for the corporates that are currently assuming drastic measures to protect their profitability. This reduction in corporate taxes will help organizations to grow and help boost employment restoring the balance in our economy. A stronger economy will therefore lead to higher consumption leading to GDP growth. As it is always the case, a high GDP growth leads to stronger end user buying pattern and general financial confidence of making long-term commitments,” said Shishir Baijal – Chairman & Managing Director, Knight Frank India.
Forum Parekh, Fundamental Analyst, Indiabulls Ventures said: “This is the historic reform announced by our FM and it is a step in the right direction. The corporate tax cut will expand the bottom-line of the companies and the profits will be utilized to start the CAPEX cycle. We further expect 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 per cent GDP growth rate in FY20.”
“The lower tax rates, shows the government’s commitment towards reigniting the economy’s growth engines and augurs well for the broad economy as well as entrepreneurs. Further the boost to the manufacturing ecosystem will not only generate jobs and lead to wealth creation but will also have cascading impact on other sectors including real estate and is likely to push demand for warehousing and commercial real estate space,” said Anshuman Magazine, Chairman and CEO, India, South East Asia, Middle East and Africa, CBRE.
