India Inc. said the government’s proposal to cut corporate tax rates for local businesses will shore up confidence at a time the economic growth plummeted to a six-year low.
Finance Minister Nirmala Sitharaman said tax on all domestic companies will be lowered to 22 percent from a base rate of 30 percent currently. The effective new rate will be 25.2 percent, including all additional levies. The companies will not have to pay any minimum alternative tax. The new tax structure is effective from April 1, 2019. New companies formed from Oct. 1 will attract a base tax rate of 15 percent and effective rate of 17.01 percent, she said.
The step will promote growth and investment, Sitharaman said, adding the latest measure will cost the government Rs 1.45 lakh crore in revenue.
Here’s how India Inc. reacted to the stimulus...
‘Tremendous Impact’
The measures will have a “tremendous” impact on the country’s manufacturing sector, according to RC Bhargava, chairman of Maruti Suzuki India Ltd. “This will enable them [the manufacturing companies] to either reduce prices and make new capital investments,” he told BloombergQuint in an interview.
The newly set-up manufacturing firms paying a lower corporate tax, according to Bhargava, was an unprecedented reform.
The cut in rate themselves don’t increase demand for products but manufacturers can do a lot of measures to spur demand such as lower prices. So, it will help in pricing policies and new companies will at look at the advantages of investing in India.RC Bhargava, Chairman, Maruti Suzuki India
‘Freedom To Do Business’
The reforms will spur growth and create more jobs for the economy, said Subbu Subramaniam, chief financial officer at Titan Company Ltd. “This will also tempt companies to lower prices [on their products and services] as post-tax returns would still be good.”
It will effectively bring down the tax rate by at least 4 percent that will flow into our profitability. The announcements also give the freedom to do business the way we want in terms on where to set up factories.Subbu Subramaniam, Chief Financial Officer, Titan
‘Big-Bang Reforms’
Uday Kotak, vice chairman and managing director of Kotak Mahindra Bank, termed the announcement as “big bang reform”. It paved the way for domestic firms to compete with countries having low corporate tax rates such as the U.S, he said.
‘Need Of The Hour’
The stimulus package was the “need of the hour”, said Pranav Sayta, partner (tax) at EY. “This is not tit-bits but a significant tax reduction. However, one has to see how fiscal deficit is managed.”
RECOMMENDED FOR YOU
POPULAR