SBI Chairman Rajnish Kumar said that the large reduction in corporate taxes across the spectrum of all companies is perhaps the boldest reform in the last 28 years.

Bold move tax bonanza India Inc cheers governments taxation reforms
Money Taxation Friday, September 20, 2019 - 17:46

India Inc. on Friday cheered the government's Rs 1,45,000 crore stimulus, which includes slashing corporate tax to 22 per cent for domestic companies, lower tax of 15 per cent for new manufacturing firms and measures to boost the capital market.

"We welcome the Finance Minister's proposition of slashing corporate tax, scrapping surcharge on buyback announced before July 5 and expanding the scope of CSR spend," said Nagesh Basavanhalli, MD and CEO, Greaves Cotton Ltd.

The biggest booster dose of the Modi 2.0 government is expected to give a major push to the sagging economy which clocked a 6-year low growth of 5 per cent in the April-June quarter of FY20.

Anil Agarwal, Executive Chairman, Vedanta Resources, said that the government move will definitely prove to be a huge impetus for the manufacturing and infrastructure sector.

"We are confident this step, in coming days, will boost economic growth so that Gross Domestic Products (GDP) can attain its true potential of 8-9 per cent," he said.

Rajnish Kumar, Chairman of SBI said that the large reduction in corporate taxes across the spectrum of all companies is perhaps the boldest reform in the last 28 years.

“Such a rate cut will boost corporate bottomline, facilitate a reduction in product prices. Additionally, the move to incentivise setting up new manufacturing units in India comes at the most opportune time for foreign companies who could be actively looking for opportunities to invest globally! This move could also materially lead to India effectively integrating with the global supply chain and a boost to Make in India campaign,” he added.

Aditya Ghosh, CEO of OYO India and South Asia said, “This is a bold step to provide a fillip to the Indian economy. Just ahead of the festive season, the honourable Finance Minister by reducing the corporate tax rates, has given a triple booster dose to the economy as this will increase the retained earnings of the companies which will result in investible surplus for the future, shift India at par with its regional peers thereby removing one of the issues related to manufacturing and exports and maintain macroeconomic prudence by continuing to stimulate the investment cycle.”

The new set of measures is also aimed at lifting market sentiment which has seen foreign portfolio investors (FPIs) pulling out their money from the capital market since the Union budget announcement of raising surcharge on them.

The move to lower corporate tax, withdrawal of surcharge and other concessions seem to have hit the right chord with investors as it sent stocks at both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) soaring.

The lower corporate tax effected for 2019-20 through an ordinance is set to induce private investment and boost consumption, the two key growth engines.

"India Inc. looks forward to a roller coaster festive season tax bonanza to ride the tide of positive sentiments. This positive sentiment will go long way in resurrecting dying economy, but we also hope that super tax on the individuals and HUF would also be further rationalised at 35 per cent from currently obnoxious rate of 42 per cent to uplift the end-users spirit," said Niranjan Hiranandani, Senior Vice President at industry body Assocham.

Business and industry see the fresh measures helping them in beating the slowdown which has gripped the entire country for quite some time. With global headwinds continuing and the world economy slowing, the stimulus measures could not have been more timely.

As the corporate tax rate has now been brought at par with many emerging economies and countries in South East Asia, industry captains hope it will make the Indian economy globally competitive.

For companies going for fresh investments, there is a big incentive now as they will have to pay a lower tax of 15 per cent.

It might be mentioned that lower corporate tax of 22 per cent will apply to those companies which choose not to take any other exemption or incentives. The companies making incorporate after October 1, 2019, would be eligible for lower 15 per cent tax.

"Finance Minister Nirmala Sitharaman's Rs 1.45 lakh crore stimulus to reboot India is a bold move to unleash the animal spirit! This can certainly turn the tide for the economy & markets! Also, it's a move towards simpler low tax regime with no or minimal incentives exemptions (which are misused more than used)," said Nirmal Jain, Chairman, IIFL Group.

While hailing the government move some of the experts highlighted the fiscal risks involved with it.

"The tax reliefs announced are likely to put upward pressure on the fiscal deficit needing a revision in the government's borrowing target for the year. This would likely lead to upward pressure on bond yields but this could get mitigated if RBI chips in with an aggressive policy rate reduction," said Dheeraj Singh, Head of Investments & Fund Manager, Fixed Income, Taurus Asset Management Co. Ltd.

As the new measures would cost the government Rs 1.45 lakh crore in revenue, many experts see this to have an impact on government spending.

"Whilst it might take some time for the investments to materialise, it is a step in the right direction. One should also examine how this move impacts government spending," said Akila Agrawal, Partner & Head, M&A, Cyril Amarchand Mangaldas.

Sampath Reddy, CIO, Bajaj Allianz Life Insurance too, welcomed these measures, saying that this will help to revive the economy, and thereby change the course of market direction in the near term.

However, his thoughts on the revenue’s forgone echoed with that of Akila’s.

“The revenue foregone from the tax rate cut and other relief measures is Rs. 1.45 lakh crore (~0.7% of GDP). With GST collections running already below target, this move is likely to cause a fiscal slippage on the government’s 3.3% fiscal deficit target for FY20. This is being reflected in the sharp spike in bond yields post the announcement. From a fixed income perspective, we presently prefer the shorter end of the yield curve,” he said.