Big ticket investments to miss 25% tax bracket for new manufacturing units

Companies like Suzuki and Foxconn will have to forego other tax incentives if they are t avail themselves of the new tax sop announced in the Budget

Giving a thrust to the “Make in India” drive, the Budget has proposed a tax rate of 25 per cent to new manufacturing units. But big-ticket investments like Japanese major Suzuki and Taiwan’s Foxconn — which are planning to set up new units in India — will not benefit as the Budget asks these companies to forego other tax incentives.

The lower taxation is offered to companies that incorporated after March 1.

The incentives are offered at a time analysts are expecting cumulative corporate capex to decline by 13 per cent each in the next two years. Tax experts say a 25 per cent tax bracket and cess is good news for those companies, which are planning to set up manufacturing units in areas that aren’t getting any investment incentive. But there will be very few takers in the medium term, as the investment climate is not good and the government has anyway announced that corporate tax will come down to 25 per cent in four years, say tax experts.

A post-Budget, capex analysis of 50 listed companies by Religare projects an alarming 13 per cent decline in the next two years. The capex for three major capital intensive sectors like power, oil and gas, and metals is expected to decline by nine per cent, 14 per cent and 26 per cent through fiscal 2016 to 2018. Further, Religare says consensus fiscal 2017 capex expectations for the three sectors have changed by five per cent, zero per cent and negative 29 per cent respectively in the last one year.

In this backdrop, lower corporate taxation for new manufacturing units was to encourage corporates to press the pedal on investments. But the new manufacturing companies may not take the options as  Budget says the tax benefits will be given provided they do not claim profit linked or investment linked deductions and do not avail themselves of investment allowance and accelerated depreciation. Though the budget has proposed to invest Rs 2.18 lakh crore in infrastructure development, most of this increased demand for cement, steel and capital goods will be met through the current capacity instead of setting up new capacity.