Corporate Tax Reduction

Finance Minister Nirmala Sitharaman on Friday made a bold move by announcing the cut down in basic corporate tax to 22% from 30% for all domestic companies without tax exemptions and 15% for all new manufacturing companies.
It is a part of stimulus measures to increase slowing economic growth. This reduction may encourage business firms to invest more at a time economic growth rate that has slowed down to a six year low of 5%.
The listed companies will also get a relief from buyback tax.
The companies were worried about the retrospective impact of the buyback plans announcement, which made them liable to pay additional 20% buyback tax.
If we assume that the earnings of these companies remain the same in fiscal 2019, then they will save almost $3 billion due to tax reduction, says Moody.
Nirmala Sitharaman also added that the government is well aware of the consequences of the revenue outgo that would happen due to the tax reductions and the Centre might lose up to 1.45 trillion rupees.
There have been arguments that, as the situation for fiscal is constrained, any stimulus may be precarious.
Reduction of corporate tax rate will increase the tax net and gradually widen revenues.
If we consider the combined impact of state level income tax applicable in US, India will be more competitive than some US states. This huge advantage will help in strengthening India’s position to leverage opportunities in the global supply chains being disrupted due to the US-CHINA trade war.

By Deeksha Nasa