In a major step to revive the animal spirits of economy, Finance Minister, Nirmala sitharaman slashed corporate tax for domestic companies to 22 per cent. “Any domestic company gets an option to pay income tax at a rate of 22% subject to condition that they will not avail any incentive,” the finance minister said at a press conference in Goa, a few minutes before 37th GST council meeting, which is to be held at same venue. The new cuts will bring the effective corporate tax to 25.17 per cent, including cess and surcharges.
The new companies, set up after October 1, will need to pay only 15 per cent Minimum Alternate Tax (MAT) which will bring down the effective corporate tax to 17.01 per cent. The new measures will lead to revenue loss of 1.45 crore rupees to central government.
The Direct tax code report given to the government by expert committee has proposed a flat 25 per cent corporate tax on all firms. But the government went a step ahead to reduce the rate to 22 per cent for established corporates and 15 per cent new units.
Currently, foreign companies operating in India without a subsidiary are taxed at 40 per cent while the domestic companies with above 400 crore rupees annual turnover are taxed at 30 per cent. India has one of the highest corporate tax rates in the world which ranges between 25 to 40 per cent.
As a developing country, India needs capital to encourage economic activity among market players but such a high taxation has kept the activity low.
Currently, foreign companies operating in India without a subsidiary are taxed at 40 percent while the domestic companies with above 400 crore rupees annual turnover are taxed at 30 percent. India has one of the highest corporate tax rates in the world which ranges between 25 to 40 percent. As a developing country, India needs capital to encourage economic activity among market players but such a high taxation has kept the activity low.
Even capital rich western countries levy lower taxes on their companies. The corporate tax rate in western world varies between 20 to 30 percent compared to 25 to 40 percent in India. The proposal to levy a uniform tax rate on all companies will make the compliance easy and simplify the taxation process.
In last few days, finance minister held a series of meetings with all stakeholders of Indian economy. The industrialists, representatives from distressed auto sector, people from capital markets, and the economists from right side of the political spectrum who support Modi government but were visibly upset over some socialist measures met with finance minister and expressed their concerns. They also suggested some corrective measures on which government is brainstorming. Therefore, the Modi government is expected to take more measures for bringing back the animal spirits of Indian economy.