India Inc leaders said the government’s decision to cut corporation taxes on Friday would increase investments, spur demand, and encourage multi-national corporations to shift their units to India. New manufacturing units will attract tax rates of only 15 per cent.
“This is a big respite and would give the required stimulus to the economy. The reduction of the tax rate will also enable companies optimise their cash flows, leading to increased investments. This is a great step towards the $5-trillion economy,” said Tata group Chairman N Chandrasekaran.
Chairman of Aditya Birla Group Kumar Mangalam Birla said these steps would boost the economy, leading to a big reset and revive animal spirits.
“The reduction in corporation tax rates will not only lead to economic buoyancy but will also make Indian industry more competitive globally. Beyond the immediate benefit of an investment incentive for the manufacturing sector, these steps will also lead to a paradigm shift in the mindset. These measures only reaffirm the government’s willingness to move beyond ‘incrementalism’ and act with conviction to pursue economic reforms,” said Birla.
Chief executives of corporate entities said the government should have reduced the personal tax as well because this would lead to surge in demand from consumers.
“This is an excellent move to bring back confidence and will boost investment by corporate entities. A real game changer. The government should revisit the personal taxation as well,” said TVS Motor Chairman Venu Srinivasan.
“Amidst these challenging times, the reduction in the corporation tax and the minimum alternate tax (MAT) will infuse confidence in the economy. It also addresses the core challenge of liquidity, reinstating India as an attractive investment destination,” Adani Group Chairman Gautam Adani said.
Corporate leaders said the tax cuts had come at the right time, just before festive season. This would also help in creating jobs.
“The tax cuts will boost consumption sentiment before a three-month-long festive season that starts next month,” HDFC’s Chief Executive Officer and Managing Director Keki Mistry said. “It will also help boost growth over the next two-three quarters.” R C Bhargava, chairman of India’s largest car maker Maruti Suzuki, said the reduced tax rate will help companies give incentive to customers at a time when demand for automobiles was going through an unprecedented decline. “While the cuts won’t increase demand from customers, it’s possible to look at pricing policies,” he said.
The cut in corporation tax has been a long-standing demand of industry and is an unprecedented and bold move by the government, said Vikram Kirloskar, president, CII.
The announcements will also encourage multinationals to shift their plants to India as the government announced they would be taxes at a lower rate of 15 per cent for those that will go for incorporation from October.