In what is coined as a bold move by the Government of India, Corporate Tax Cut aims to serve as a booster to make the country more competitive in global market.
India aims to be a competitive investment hub with its recent announcement of the biggest cut in corporate tax in the last 28 years.
“The rates are now much lower compared to that in China and most of the Southeast Asian nations”, said Finance Minister Mrs. Nirmala Sitharaman.
The tax reform is projected to structurally help the country emerge as globally competitive hub inducing more foreign and domestic investment whilst boosting exports.
According to ICICI Direct Research Report, the corporate tax cut announcement is set to benefit industries such as FMCG, banking, pharma, IT and many more.
Under the tax reform, the base tax for existing businesses has been slashed to 22% from the existing 30%. Further, under the Make-in-India initiative, for new manufacturing companies incorporated post-October 1, 2019 and are expected to begin operations from March 31, 2023, the reformed tax rate would be 15% from the existing 25%.
The immediate impact would be improved cash flows to the corporate ecosystem of the country, which the government plans to channelize towards debt reduction and/or incremental investments.
Further, a new provision is bought into action in the Income Tax Act rule that will be effective from FY20, which permits any domestic organization to pay income tax at 22% on a condition that they won’t avail any incentive or exemption.
RBI Governor Shaktikanta Das applauded the government’s tax cut decision. “It is a bold and positive move and will attract investors”, said Mr. Das.
With the new tax cut reform in action, corporates are expected enjoy higher profits that can be returned as dividends. In addition, many companies particularly the MNCs, pay a huge proportion of their profits as dividends and the new tax reform will help boost dividends thus, improving collections of DDT (Dividend Distribution Tax) and income tax.
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Sources: The Economic Times, NDTV Profit, INDIA Today & The Hindu BusinessLine.