India's Finance Minister Nirmala Sitharaman and the Reserve Bank of India (RBI) Governor Shaktikanta Das arrive to attend the RBI's central board meeting in New Delhi, India July 8, 2019. MoS Finance Anurag Thakur and Revenue Secretary Ajay Bhushan Pandey are also seen.
The govt on Friday announced a Rs 1.45 lakh crore fiscal stimulus that includes slashing corporate tax to 22% from 29.5% for companies that do not seek exemptions, 15% for new manufacturing start-ups as well a cut down on MAT (minimum alternate tax). The effective tax rate for this category of companies will be 17.01%, about 12 percentage points lower than what prevails now.
The effective rate with surcharge and cess for large companies has been brought down from 34.94 per cent to 25.17 per cent. Among other things, domestic manufacturing companies that have been incorporated after October 1 can opt to pay income tax at 15%. Effective tax rate in this case would be 25.17 per cent, including cess and surcharge.
The incumbent Narendra Modi-led BJP government expects to lose 1.45 trillion rupees (US $20.5billon, PKR3,201 billion) a year in revenues from the latest Corporate Tax cut.
Allowing corporate social responsibility (CSR) spending on incubators or research grants to institutes engaged in promoting science research can accelerate innovation in India, Rishi said. "We are conscious of the impact all this will have on our fiscal deficit, and will reconcile the numbers", she said.
The measures will cut revenue by 1.45 trillion rupees ($20.4 billion) in the current fiscal year, according to government estimates.
On the fiscal deficit target, she said any decision on tweaking the target would be taken near Budget.
Also, the super-rich tax will not apply on capital gains from the sale of any security including derivatives in hands of foreign portfolio investors.
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With the lowering of corporate tax rate to 25.17%, India would be on par with several other Asian economies.
A uniform GST rate of 12 per cent on polypropylene/polyethylene woven and non-woven bags and sacks used for the packing of goods will be levied in place of present rates of 5 per cent/12 per cent/18 per cent, respectively.
"This is a significant move by India to reassure the business community that the Modi government is not hostile to their interests", said Sadanand Dhume, a resident fellow at the Washington-based American Enterprise Institute.
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.
"In view of India's already high general government fiscal deficits, we see this as a credit negative development", said Andrew Wood, director of sovereign and worldwide public finance ratings at S&P Global Ratings.
K R Sekar of Deloitte India said that the tax cuts would encourage competitiveness and also minimise tax cash outflows which would be ploughed back into Economy.
The mini-budget of tax measures came just a day after the Centre announced credit carnivals in 400 of the 731 districts in the country to re-ignite the consumption demand.