Lower corporate tax to help improve Indian industry's global competitiveness: Nasscom

Terming the reduction in corporate tax as a "positive step", IT industry body Nasscom on Friday said the decision will help in improving the global competitiveness of Indian industry.

"...it is a positive step towards empowering India and boosting Indian economy and to promote growth, investments, employment. The reduced effective peak tax rate of 25.17 per cent means an effective tax rate reduction of almost 10 per cent," Nasscom said in a statement.

For companies that were entitled for the earlier reduced basic corporate tax rate of 25 per cent (effective tax rate of 29.12 per cent), the reduction is 3.95 per cent.

"This is a significant benefit. This will help in improving Indian industry's global competitiveness and allow spends on incubators that will help boost creation of tech ecosystem," it said.

For companies that continue to claim tax holidays and not opt for the switch, a reduced MAT rate of 17.47 per cent (as against the earlier 21.55 per cent) will help in reducing the cash tax outgo, Nasscom pointed out.

IT companies incorporated after October 1, 2019 proposing fresh investments in the hardware/fab sector (commencing manufacturing before March 31, 2023) will benefit by the new incentivised corporate tax rate of 17.01 per cent and no MAT will apply in such cases.

"The said announcement along with the recent export rebate announced in place of MEIS scheme is a great incentive to the manufacturing units," Nasscom said.

The industry body welcomed the clarification from the government that no tax will be charged on share buyback by listed companies which announced such a move prior to July 5.

"...(this) should help the listed companies that had not factored the buyback tax when the scheme was announced," it added.

In July, the government, as part of the Budget, had announced a 20 per cent tax on share buyback by listed companies. The move would have impacted a number of firms, including IT giants Infosys and Wipro.

In January, Infosys had announced that it would buy back shares of the company for an amount aggregating up to Rs 8,260 crore. The buyback commenced in March and closed in August.

Similarly, Wipro had announced a Rs 10,500-crore buyback programme in June this year that started on August 14 and closed on August 28.

Wipro Chief Financial Officer Jatin Dalal said the government has taken a giant leap in tax reforms.

"Clarification on grandfathering of buyback tax on inflight buyback programs as of July 5, 2019 is a comforting outcome. This would go a long way in restoring confidence in the market and nudge companies to make fresh investments," he added.

Infosys did not comment on the issue.

Indian IT companies like Tata Consultancy Services, Infosys, HCL Technologies and others have taken the buyback route to return some wealth to their shareholders, while potentially boosting their stock prices.

Nasscom said these announcements are an important milestone brought out by government.

"This is a clear testament of a collaborative effort from the industry and the government to improve opportunities for all sectors to achieve the USD 5 trillion economy mark by 2024," it added.

Tech Mahindra MD and CEO CP Gurnani said the "well-timed tax relief measures are a concrete step towards stabilising the economy and bolstering investment".

This will help spur growth and employment opportunities in key sectors, he added.

Dalal said the government has taken a giant leap in tax reforms, which is a huge boost to corporates and will enhance India's position as a competitive destination for fresh foreign investments.

"'Make in India' now gets a fresh impetus with reduced rates of corporate income tax. MAT rate reduction is also a bold move," he added.