Corporate Tax

21 Sep

Industry, stock market experts term Sitharaman’s corporate tax cut ‘revolutionary’, say will make Indian firms globally competitive

India has finally become tax competitive. Slashing Corporate tax rate to 22 percent is revolutionary, said experts, hailing the government slashing corporate tax to 25.17 percent inclusive of all cess and surcharges for domestic companies.

Making the announcement, Finance Minister Nirmala Sitharaman said the new tax rate will be applicable from the current fiscal which began on 1 April.

Industry, stock market and experts cheered slashing of corporate tax rate and other announcements by Finance Minister Nirmala Sitharaman saying the big bang reforms will push economic growth and investments.

File image of finance minister Nirmala Sitharaman. PTI

Uday Kotak, CEO, Kotak Mahindra Bank, termed reducing corporate tax rate to 25 percent as a ‘big bang reform’. He said in a tweet:

Biocon CMD Kiran Mazumdar Shaw also applauded Finance Minister Nirmala Sitharaman.

By slashing the corporate tax rate, the government has “recognised today the need to make Indian companies globally competitive , said Hitesh. D. Gajaria, Partner and Co-head of Tax, KPMG in India. He termed the move a hugely positive step that he believes will conserve much needed funds in the hands of corporates to turbo charge investments leading to more employment and capacity creation. It Will also reduce litigation on contentious issues around incentives.

Sitharaman also said companies opting for 22 percent income tax slab would not have to pay minimum alternative tax (MAT). Gajaria welcome the MAT reduction from 18 to 15 percent and said the next follow-through step eagerly awaited are moving the tax on dividends to shareholders and freeing companies from the dividend distribution tax burden.

In another major announcement, the government has also decided to expand the scope of CSR 2 percent spend on incubation, IITs, NITs, and national laboratories. Now CSR 2 percent fund can be spent on incubators funded by Central or State Government or any agency or Public Sector Undertaking of Central or State Government, and, making contributions to public funded Universities, IITs, National Laboratories and Autonomous Bodies (established under the auspices of ICAR, ICMR, CSIR, DAE, DRDO, DST, Ministry of Electronics and Information Technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting SDGs.

Welcoming the move, Frank D’Souza Partner and Leader Corporate and International Tax, PwC India said, “the reduction in the corporate tax rate is a welcome move and makes India attractive for new investments. Also, the changes to CSR contributions and the relief on buy-back tax, will address past concerns and also help in channelling funds towards R&D initiatives.”

Experts weigh in with their comments on the government's bold move:

Santosh Joshi, Founder & CEO, BankEdge

Lower base tax rate of 15 percent for new companies formed after 1 October is also a big positive step for getting the economy back on track. These steps will allow manufacturing and financial services sector companies to proceed with capex plans and credit growth. Profitability for companies will increase with lower taxes and would enable them eventually to make new capital investments.

Jatin Dalal, Chief Financial Officer, Wipro Limited

The government has taken a giant leap in tax reforms. 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 rate reduction is also a bold move. Clarification on grandfathering of buyback tax on inflight buyback programs as of 5 July 2019 is a comforting outcome. This would go a long way in restoring confidence in the market and nudge companies to make fresh investments.

Rajnish Kumar, Chairman, SBI

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!

Ajay Piramal, Chairman, Piramal Group

The announcement made by the Finance Minister today is commendable. With this the government has signalled that it is listening to the industry and is willing to embrace it as a partner for progress of the Country. We are certain that this Big Bang reform will kickstart the economy. Surplus funds available to companies will be invested in capex and talent. The NBFC sector will save between Rs. 250 – 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.

Anil Agarwal, Executive Chairman, Vedanta Resources

The reduction of corporate taxes, including surcharges and cess, will significantly boost the economy and will provide a huge impetus for the manufacturing and infrastructure sector. We are confident this step, in coming days, will boost economic growth so that GDP can attain its true potential of 8-9 per cent. The journey looks extremely bright for creation of thousands of jobs in India and helping the country to march towards the $5 trillion-mark.

Sugata Sircar, CFO, Schneider Electric-India

The series of confidence building measures announced by the government recently and underscored by the Finance Minister on Friday is expected to create a positive sentiment in the market in terms of demand generation as well as investment. The lower rate announced for domestic manufacturing companies formed after October 2019 is expected to boost investments in the manufacturing sector.

Ashishkumar Chauhan, MD & CEO, BSE

The slew of historic measures has brought down Indian corporate tax rates to amongst the lowest in the world especially for the new manufacturing companies. These decisions will be celebrated as historic and will go a long way in improving ‘Ease of Doing Business In India’ even further. There are several other fiscal measures that have also been announced which all point to the government’s commitment to promote the business activities and enhance job creation manifold. These announcements will further boost the investor confidence and start the investment cycle.

Gopichand P Hinduja, Co-Chairman, Hinduja Group

The tax reduction is an excellent step that was needed for Indian economy revival and manufacturing sector. It shows 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 economy and amongst 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.

Ashok Mohanani, Chairman, EKTA World, Vice President, NAREDCO Maharashtra

Investors and homebuyers have been on the other side of the fence lately due to uncertainty and bleak economy outlook. Today’s announcement has brought in a ray of light for the economy at large, resulting in a rise in Sensex by 1900 points. This has led to a spike in investor wealth by as much as Rs 2.11 lakh crore. We are expecting this to lead to a positive change in sentiment for the real estate sector. Furthermore, the sector has also requested the FM to allow one time restructuring of loans to ensure completion of housing projects, and reduction of home loans to 7 percent whereby we will be able to attain Housing for All by 2022.

TS Kalyanaraman, Chairman and Managing Director, Kalyan Jewellers

It is very positive to see the government move pragmatically and provide the much needed liquidity boost to the economy. Lower tax rate will increase transparency in the gems and jewellery industry which will ultimately lead to a shift from unorganized to organized sector. We welcome this dynamic decision implemented by the government.

SR Patnaik, Partner & Head-Taxation, Cyril Amarchand Mangaldas

This is an extremely important and very courageous move which should give a significant push to the market and industry. We hope this move is expected to unleash the animal instinct in the Indian industry and put the economy back on the high growth. Specifically, the reduction of the Indian corporate income tax, clarification on the buyback tax and super rich tax are very encouraging.