Finance Minister Nirmala Sitaraman has announced a slew of tax cuts in order to spur investor confidence. Corporate taxes for Indian companies have been slashed from 30 % to 22%, for new Indian manufacturing units corporate taxes have been reduced to 15%.
The announcement led to the BSE Sensex soaring by 1921 points in effect a a 5.32 % rise.
The reduction in corporate taxes amounts to Rs 1.45 lakh crore of a stimulus package for industry.
The corporate tax which amounted to 30% went up to around 34% once cess and surcharge was added to it now it would be charged at 22% and the addition of cess and surcharge would take it to around 25%.
In order to support startups and promote enterprise new manufacturing units which would be set up after October 1, 2019 and start manufacturing before March 31, 2023 would now have to pay 15% corporate tax as opposed to the earlier rate of 25%. Addition of cess and other charges should take the rate close to 17.0 1%.
Decrease of taxes for Indian firms is aimed at giving a filip to ‘Make in India’ scheme.
The Finance Minister also announced that capital gains tax would now be free of surcharge- a measure that should bring profits to those who are selling shares and investing in equity mutual funds.
Incidence of Corporate tax is on the investors, India’s Corporate tax rates are higher than most countries and lowering them had been a longstanding demand of Indian industry.
These decisions was welcomed from various quarters be it industry, media, academics and investors however some expressed concern that the government forgoing collection of Rs 1.45 lakh crore in taxes could increase the fiscal deficit and take it close to 5%.
While some felt that the reduction in corporate tax rates should have also been extended to foreign companies as that would make India an even more attractive investment destination.