Finance Minister Nirmala Sitharaman on Friday announced a significant cut in corporate tax – a demand the industry has been putting forward for the past few years. Giving much relief to the corporate companies, the government has slashed the tax rate on all domestic firms to 22 per cent. Further, new manufacturing companies that will come up from October 1 onwards will have to pay tax at 15 per cent rate, Sitharaman said.
This means, while the effective tax rate for existing firms now stands at 25.1 per cent, for new manufacturing companies it will be 17.01 per cent – after taking into account the duties and surcharges. Further, they will be now exempted from paying minimum alternate tax (MAT).
With the reduction of tax rate for existing firms and a significantly lower rate for new manufacturing companies, investment is expected to rise. Industry stakeholders said lower tax payable would now mean more liquidity in the books of corporate companies, which should reflect in higher investment.
Quoting Titan's chief financial officer, Subba Subramaniam, Abneesh Roy, senior vice-president, Edelweiss Securities said that the company will save four per cent from these rate cuts.
Neeru Ahuja, partner, Deloitte said, "We should see higher investment flows coming into India as net return to investors will be very attractive now". According to him, effective corporate tax rate of about 35% coupled with dividend distribution tax rate of about 20% was becoming uncompetitive as return on investment was low.
"Reducing the corporate tax rate and for new entrants setting up manufacturing units is a big boost. It has two important effects. One the domestic environment which was sluggish due to slowdown is going to fade with lowered corporate taxes and second the Make in India will see a boost as well," said Mustafa Nadeem, CEO, Epic Research.
According to Ajay Bodke, CEO, PMS Prabhudas Lilladher, the measures will attract hundreds of billions of dollars of FDI & FII flows over the medium term.