Rate cuts to widen taxpayer net, spur investments, says FM Nirmala Sitharaman

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Updated: September 21, 2019 6:58:00 AM

The details of the recommendations in the DTC will come out sometime. At the moment, we have come out with these rate cuts essentially to give a boost to Make in India, newer domestic and foreign investments.

corporation tax rate, corporation tax cut, corporate tax, corporate tax rate, corporate tax in india, corporate tax rate india, Narendra Modi, nirmala sitharaman, financial express, financial express opinion, corporate tax rate 2019FM Nirmala Sitharaman  (Image: PTI)

The government is not oblivious to the impact of the corporate tax rate cuts on the fiscal deficit, finance minister Nirmala Sitharaman said. However, she added that these steps are needed to boost investment and employment. Excerpts from the FM’s press conference in Goa on Friday, announcing the stimulus measures:

How do you plan to meet revenue targets with such huge revenue foregone (Rs 1.45 lakh crore) due to reduction in corporate tax rates? Direct tax collections are already way behind target…
We want more investments. Make in India means a lot more investment, employment generation and a lot more economic activity. More investments will lead to more revenues. So, this is just not a debate… Oh my God you got this problem of revenue collection… Don’t do it or do it, is not the option. In order to strengthen Make in India, obviously (we have had to do it).

Will the government stick to the fiscal deficit target of 3.3% for this year?
We are conscious of the impact of the tax rate cuts on the fiscal deficit. We will be taking into account the impact of tax cuts to reconcile as to how the fiscal situation is now and how we want to take it forward. Lower tax rates are expected to widen (the taxpayer) basket. So, we will definitely be having a positive impact on revenue collections. After the reduction in rates, India’s corporate tax rates are probably one of the lowest and at par with the lowest in Southeast Asian countries. The new tax rates are going to attract investments and encourage existing companies to invest more.

What are the conditions for availing the 22% corporate tax rate?
The companies should not be claiming any exemptions or incentives. For example, if a unit is located in SEZ, such a company may not opt for the new rate if their tax liability is less than 22%. However, a company which is not claiming any deduction may avail 22% rate as against 30% now. Companies which are currently getting tax exemptions (under various provisions), they can switch to the new tax regime after expiry of the exemptions.

Corporate tax rate cut decoded! Why FM Sitharaman’s announcement is a Diwali bonanza for economy

Are the corporate tax cuts in line with the draft direct tax code? What is the rationale for not cutting personal income tax as recommended in the code?
The details of the recommendations in the DTC will come out sometime. At the moment, we have come out with these rate cuts essentially to give a boost to Make in India, newer domestic and foreign investments.

Can foreign investors avail 15% tax rate for setting up new manufacturing units?
If the foreign investors have a permanent establishment here or if they join here in equity of an Indian company, they can avail the lower tax rate.

The new tax rates will be effective from which date? What about companies which have paid advance taxes?
The new tax rates will apply from April 1, 2019. Any advance tax paid by a company will get adjusted when it pays advance tax next time.

What will be the effective corporate tax rate after reduction in the rates?
(As explained by the revenue secretary). A company which was in 30% tax bracket, effective tax rate for it was 34.94% (inclusive of surcharge). After reduction of basic rate to 22%, the effective tax rate for it will be 25.17%. For a new manufacturing company, the basic tax rate was 25% and the effective tax rate was 29.12%. After the reduction in rate to 15%, the effective tax rate will be 17.01%. Effective MAT rate used to be 21-22% depending on volume of tax, the new effective MAT rate will be 17%.

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