The reduction of the corporate tax to 25 per cent from 35 per cent (22 per cent from 30 per cent without exemptions) and 15 per cent corporate tax for new manufacturing registering before October 1, has boosted corporate sentiments, which was hit by sagging economic growth. To avail of the lower tax, new units should start operations before 2023.
Uday Kotak, Chairman, Kotak Mahindra Group, in a tweet said reducing the corporate tax rate to 25 per cent is a big bang reform. It allows Indian companies to compete with lower tax jurisdictions like the US. It signals that the government is committed to economic growth and supports legitimate tax abiding companies. A bold, progressive step forward, he said.
Some of the sectors that will immediately benefit from the cut in tax are banking, FMCG, consumer durables and auto companies. Apart from boosting demand, India will suddenly become attractive for the manufacturing sector with a lower corporate tax rate for new manufacturing companies in India, especially in times when the world is in the phase of trade wars.
Sandip Somany, President, FICCI, said the 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.
Lowering of income tax on corporates is a longstanding FICCI request. With the kind of corporate tax rate cuts announced today, India now becomes a competitive market in the region, with rates similar to those prevailing in the ASEAN countries.
“The additional measures announced to stabilise the flow of funds to the capital markets by not applying the enhanced rate of surcharge on capital gains arising from sale of equity shares and units of equity funds, is another major positive. This will make India an even more attractive destination for funds flow and is bound to draw much greater attention from foreign institutional investors,” he said.
Finally, he said the decision to allow CSR funds to be used for supporting incubators set up by central and state governments and supporting universities, autonomous institutions, besides research bodies that are publicly funded, clearly indicates that the government wishes to promote public-private partnership in scientific research and development and make India move up the innovation ladder, he added.
By lowering the tax rate for new units, the government has rolled out a red carpet that would ensure higher foreign investment over the medium term.
Of late, the government has announced a slew of measures that would act as a force multiplier for the flagging economic engine.