Finance Minister Nirmala Sitharaman is confident that US tech major Apple coming to India after the new lower tax regime will send a big signal to other foreign companies to explore opportunities here.
Sitharaman, while speaking to mediapersons here on Sunday, also made it clear that there will not be any revision in the Budget estimates as of now. On Friday, Sitharaman announced that any new company, incorporated on or after October 1, 2019, and which starts production on or before March 31, 2023, will be required to pay corporate tax at the rate of 15 per cent (effective rate, inclusive of cess and surcharges: 17.01 per cent). This is 10 per cent lower than the normal rate and 12 per cent lower than the effective rate. There will not be any minimum alternative tax (MAT), which is at present levied at 18.5 per cent.
“No country gives 15 per cent tax rate in South-East Asia. India has become an attractive destination for companies to relocate supply chains from China,” said Sitharaman. After the US-China tariff war, many companies are relocating from China.
These companies focus on aspects such as rule of law, an English-speaking work force, and more importantly, lower tax, the minister said. She said that India has all these features, which is why the nation will be able to attract companies.
“Cutting a notch here or there would not have made much difference, and that is why the government focussed on a bigger cut,” she said. Also, there is no sunset clause for availing the benefit of lower tax regime for new businesses, which will also help industries firm up their mind. When asked how many companies or the quantum of investment India is expecting, she said that by early November, the government will get fair idea on that.
Why 22 per cent?
On Friday, she also announced a decision to slash corporate tax rate to 22 per cent from a maximum rate of 30 per cent. When asked the reason for this decision, she said that it was to see that tax incidence should be around 25 per cent.
In the new regime for existing businesses, maximum effective corporate tax would be 25.17 per cent, nearly 10 per cent lower than the existing effective rate.
When asked about boosters, given mainly for supply side, she said that after tax reductions, companies will be able to distribute more dividends. Also, they will be able to spend more. All of these will influence demand. She also clarified that after direct tax reduction, the government cannot ask companies to lower the prices. It can happen only when there is reduction in GST.
Sitharaman said that as of now there is no plan to revise the Budget estimate for fiscal deficit (3.3 per cent of GDP or 7.03-lakh crore).
“I will see at the time of finalising the revised estimate for any change,” she said. Many experts feel that with revenue foregone of ₹1.45-lakh crore, there is a possibility of fiscal deficit rising up to 3.7 to 4 per cent. The Finance Minister also ruled out expenditure cut.
On the contrary, the Expenditure Secretary is meeting Secretaries every week to push spending by departments and PSUs for budgeted expenditure. She informed that the government would focus on disinvestment of 23 Central Public Sector Undertakings (CPSEs) for sell off. She expressed hope to acheive 100 per cent disinvestment in Air India this fiscal.