Tax cut may help Indian companies benefit from US-China trade war

G Balachandar Chennai | Updated on September 21, 2019 Published on September 20, 2019

Several companies are scouting for an alternative to China   -  GREG BAKER

Industry players point to realignment of global supply chain, say firms can seize opportunities for growth

The Finance Minister Nirmala Sitharaman’s announcement on corporate tax cuts, particularly for new investments, will help Indian companies seize opportunities arising out of US-China trade war.

Due to the realignment of the global supply chain in Asia on account of US-China trade issues, a more favourable tax rate, specifically for large fresh projects, was sought earlier this year for attracting companies that were scouting for an alternative location to China.

Industry associations such as MCCI highlighted that there was only a short window of time for India to demonstrate its competitiveness and attractiveness relative to other neighbouring countries like Malaysia, Thailand, Vietnam and Indonesia that are vigorously vying for the same opportunity pie.

Industry players, especially those in the auto component sector and engineering sectors, have been receiving enquiries about the possibility of supplies from India. But the biggest stumbling block, in their opinion, was the higher corporate tax rate compared to countries like Thailand or Vietnam. They feared losing out of opportunities to these countries.

Ramkumar Ramamoorthy, President of MCCI, had said India had an edge over others in terms of skill availability and labour cost. But a major barrier was the tax tariff in attracting fresh new investments.

In this context, Finance Minister’s announcement on Friday that any new domestic company incorporated on or after October 1, 2019 making fresh investment in manufacturing, will be an option to pay income-tax at the rate of 15 per cent.

“This benefit is available to companies which do not avail any exemption/incentive and commences their production on or before March 31, 2023. The effective tax rate for these companies shall be 17.01 per cent inclusive of surcharge and cess. Also, such companies shall not be required to pay Minimum Alternate Tax,” she said.

Lauding Finance Minister’s move, Ramamurthy said: “It’s heartening to note that the recommendations of MCCI for lowering corporate taxes on new investments into India has been accepted by the Finance Minister.

“We had highlighted the current global trade situation and the short window of opportunity available to India to attract investments emanating from the US-China imbroglio.

“With corporate taxation anywhere between 19 and 24 per cent in neighbouring countries like Malaysia, Thailand, Vietnam and Indonesia, we had made a case for lowering corporate taxes to 20 per cent or less to attract companies that were contemplating to relocate their plants and directing newer investments to neighbouring countries. So, it is a well-timed move which will not only help in capital formation but also promote employment and exports,” added Ramamurthy.

Meanwhile, a senior member in the MSME panel of a leading industry association had recently said that the US companies had already started exploring opportunities in India and a couple of delegations would be visiting this month to explore sourcing manufacturing and sourcing opportunities in the country

Published on September 20, 2019
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