India Cuts Corporate Tax Rates To Boost Growth
September 20 2019 - 04:22AM
RTTF2
India's government on Friday announced a reduction in the
corporate tax rate to boost a weaker economy that grew at the
slowest pace in six years in the June quarter and prompted several
companies to shed jobs massively.
The tax on income of domestic companies was lowered to 22
percent from 30 percent, Finance Minister Nirmala Sitharaman said.
The effective tax rate after surcharge will be 25.2 percent versus
35 percent earlier.
The rate on new domestic companies, which will be incorporated
after October 1 this year, was cut to 15 percent. Their effective
rate will be 17.01 percent.
The new rate will take effect for the current fiscal year that
started on April 1. The government has foregone a total revenue of
INR 1.45 trillion or over $20 billion a year.
In July, the government had lowered the fiscal deficit target
for 2019-20 to 3.3 percent of GDP from 3.4 percent projected in
February. With the latest announcement, the government is likely to
miss this target.
"We are conscious of the impact it will have on our fiscal
deficit," Sitharaman said.
The minister also waived the buyback tax of listed companies
that announced the scheme before July 5.
The Minimum Alternate Tax was reduced to 15 percent from the
existing 18.5 percent for companies that continue to avail
government exemptions and incentives.
In order to stabilize the flow of funds into the capital market,
the minister scrapped the enhanced surcharge on capital gains
arising from the sale of equity shares or equity oriented
funds.
Further, the minister said the enhanced surcharge, dubbed the
super rich tax, will not apply to capital gains arising on sale of
any security including derivatives owned by foreign portfolio
investors.
Fiscal loosening measures announced by Sitharaman are likely to
provide a small boost to economic growth over the coming quarters,
but significantly increase the chances of the ministry missing its
budget deficit target this year, Capital Economics economist Shilan
Shah said.
Reserve Bank of India Governor Shaktikanta Das welcomed the
latest government measures.
At an event organized by Bloomberg News on Friday, Das signaled
further rate cuts, saying low inflation provides room for policy
manoeuvre.
The central bank has already reduced the rate four times this
year to the lowest level since 2010.
Nonetheless, India's economic growth slowed to a six-year low of
5 percent in the June quarter. Earlier the RBI had projected real
GDP growth of 6.9 percent for 2019-20.
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