Cut in corporate tax rate: India Inc welcomes bold changes by the Govt

The Government has brought in the Taxation Laws (Amendment) Ordinance 2019 to make certain amendments in the Income-tax Act 1961 and the Finance (No. 2) Act 2019. This was announced by the Union Minister for Finance & Corporate Affairs, Nirmala Sitaraman, during a press conference in Goa yesterday (September 20, 2019). The Finance Minister elaborated further the salient features of these amendments, which are as under: 

• In order to promote growth and investment, a new provision has been inserted in the Income-tax Act with effect from FY 2019-20, which allows any domestic company an option to pay income-tax at the rate of 22% subject to condition that they will not avail any exemption/incentive. The effective tax rate for these companies shall be 25.17% inclusive of surcharge & cess. Also, such companies shall not be required to pay Minimum Alternate Tax. 

• In order to attract fresh investment in manufacturing and thereby provide boost to ‘Make-in-India’ initiative of the Government, another new provision has been inserted in the Income-tax Act with effect from FY 2019-20 which allows any new domestic company incorporated on or after 1st October 2019 making fresh investment in manufacturing, an option to pay income-tax at the rate of 15%. 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% inclusive of surcharge & cess. Also, such companies shall not be required to pay Minimum Alternate Tax. 

• A company which does not opt for the concessional tax regime and avails the tax exemption/ incentive shall continue to pay tax at the pre-amended rate. However, these companies can opt for the concessional tax regime after expiry of their tax holiday/ exemption period. After the exercise of the option they shall be liable to pay tax at the rate of 22% and option once exercised cannot be subsequently withdrawn. Further, in order to provide relief to companies which continue to avail exemptions/incentives, the rate of Minimum Alternate Tax has been reduced from existing 18.5% to 15%. 

• In order to stabilise the flow of funds into the capital market, it is provided that enhanced surcharge introduced by the Finance (No.2) Act, 2019 shall not apply on capital gains arising on sale of equity share in a company or a unit of an equity oriented fund or a unit of a business trust liable for securities transaction tax, in the hands of an individual, HUF, AOP, BOI and AJP. 

• The enhanced surcharge shall also not apply to capital gains arising on sale of any security including derivatives, in the hands of Foreign Portfolio Investors (FPIs). 

• In order to provide relief to listed companies which have already made a public announcement of buy-back before 5th July 2019, it is provided that tax on buy-back of shares in case of such companies shall not be charged. 

• The Government has also decided to expand the scope of CSR 2% spending. Now, CSR 2% fund can be spent on incubators funded by Central or State Government or any agency or Public Sector Undertaking of Central or State Government, and, making contributions to public funded Universities, IITs, National Laboratories and Autonomous Bodies (established under the auspices of ICAR, ICMR, CSIR, DAE, DRDO, DST, Ministry of Electronics and Information Technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting SDGs. 

The total revenue foregone for the reduction in corporate tax rate and other relief is estimated at Rs 145,000 crore.

Industry Reaction

Anand Kripalu, Managing Director and CEO, Diageo India:
“We welcome the bold changes introduced by the Government, which will strengthen India Inc’s role as the nation’s job and wealth creators. The increased tax savings will boost cash flows, spur domestic and foreign investment, provide competitive tax rates and act as an economic driver towards ‘Make in India’.” 

TS Kalyanaraman, Chairman and Managing Director, Kalyan Jewellers:
“It is very positive to see the government move pragmatically and provide the much needed liquidity boost to the economy. Lower tax rate will increase transparency in the gems and jewellery industry which will ultimately lead to a shift from unorganised to organised sector. We welcome this dynamic decision implemented by the government.” 

Sunil D’Souza, Managing Director, Whirlpool of India:
“The announcements on tax today are signs of the government following through with firm actions towards the vision of a $5 trillion economy. The reduction in the corporate tax rate to 22% will definitely come as a relief to the economy which has been going through a rough patch lately. The focus on reducing the corporate tax to 15% by new manufacturing units is a huge booster for both ‘Make In India’ and, therefore, manufacturing employment. Permitting companies to use their 2% CSR spend on incubation will jump shift R&D and Innovation in the country.” 

Varun Kapur, Executive Director, Travel Food Services:
“The recent announcement of relaxing corporate tax rate is a bold move by the government, which will accelerate industrial activity and bolster investment across all sectors. It is bound to increase capital formation in the country, leading to business expansion and job creation.

This will offer a two-fold benefit to the end consumer:

1. Allow companies such as ourselves to accelerate expansion plans coupled with job creation.
2. The trickle-down effect from the increased consumer confidence and spending power of the Indian consumer will provide an impetus to growth.

The vigour that will be introduced with these measures will kickstart the economy and put it back on the rapid trajectory that we as a country have got accustomed to.” 

Taranpreet Singh, Tass Advisors Partner:
“A pre-Diwali bonanza announced by the Finance Minister with primarily 2 objectives – firstly to promote industrial production and achieve the make in India motive of the Modi led Government; and secondly, to foster positive signs to the gloomy stock market. Seems that the Finance Minister has achieved both the objectives with reduction in corporate income tax and waiver of enhanced surcharge on capital gains arising on sale of equity shares FPIs and other prescribed categories. The announcement is purely welcomed by the industry at large which can be seen by buoyant change in stock indexes today and it shall have a positive sign on the economy in medium to long run.” 

Rajan Wadhera, President, SIAM:
“We welcome the bold announcements made by Hon’ble Finance Minister today, including the reduction of corporate tax rate to 22% and No Minimum Alternate Tax for companies not availing incentives under Income Tax Act. Additionally, the reduction of corporate tax to 15% for new companies making fresh investments from October 1, 2019, will support investment and also FDI in the auto sector. This is expected to give a big boost to Make in India for automobile industry.

Expansion of scope of CSR expenditure to include incubation centers and R&D activities will also help with R&D expenditures in automobile sector.

All these set of fiscal measures are expected to uplift market sentiments and improve demand for automobiles.

These are indeed landmark announcements and would certainly help in reviving growth in the Indian Economy. We truly appreciate the leadership of Hon’ble Finance Minister in making India globally competitive in terms of taxation rates. These set of major tax reforms are a clear indicator of the Government of India’s commitment to improving business environment to give a definite boost to economic growth.” 

Mohammad Azhar, Program Leader, INVENT at Villgro:
“Encouraging businesses to reroute their CSR 2% spending into state-sponsored incubators is a welcoming step to go from ‘good to great’. As an incubator, we have also noticed a significant growth in the creation of rural jobs by social enterprises, especially those which are well incubated and funded. This move will certainly help social tech-based enterprises to get more equity-free funding and deep handholding from incubators for their sustainability. Essentially because affordable product & services in sectors such as healthcare, agritech & edtech are vital to address the major problems in the rural belt of India and will act as a catalyst for their holistic growth and economic empowerment.”