Finance Minister Nirmala Sitharaman on Friday announced that corporate tax rates will be cut for domestic firms and new domestic manufacturing companies. The FM announced that current corporate tax of 30 per cent will be brought down to 22 per cent, while the existing rates for new manufacturing companies will be brought down from 25 per cent to 15 per cent.
Following the announcement, the who's who of India Inc welcomed the measure. They said that the tax cuts will bring in more investment.
Biocon Chairperson and MD Kiran Mazumdar Shaw said that the move will revive growth and investment. "Corporate tax rate cut from 30% to 25.2% to spur growth- this is a great move which will firmly revive growth n investment. My hats off to FM Sitharaman for this bold but most needed move," she said.
Uday Kotak, CEO of Kotak Mahindra Bank called it a bold and progressive step forward. "Reducing corporate tax rate to 25% is big bang reform. Allows Indian companies to compete with lower tax jurisdictions like the U.S. It signals that our government is committed to economic growth and supports legitimate tax abiding companies. A bold, progressive step forward," he said.
Ajay Piramal, Chairman of Piramal Enterprise said that this is a step that they have been waiting for. "First of all, I want to congratulate the government and the FM for taking such a bold step. This is what we have been waiting for, I think it will kick-start the economy. I have no doubts in it," he told CNBC TV18.
FICCI Chairman Sandeep Somany said these measures will reinvigorate the manufacturing sector. "These announcements will give a major boost to the animal spirits of corporate India and will reinvigorate the manufacturing sector that has been going through a difficult phase of late. Lowering of income tax on corporates is a long standing FICCI request. With the kind of corporate tax rate cuts announced today, India now becomes a competitive market in the region with our rates similar to those prevailing in the ASEAN countries," he added.
Hitesh D Gajaria, Partner and Co-head of Tax at KPMG said, "Hugely positive step, this will conserve much needed funds in the hands of corporates to turbo charge investments leading to more employment and capacity creation. This move will also reduce litigation on contentious issues around incentives."
Ajay Bodke, CEO of PMS Prabhudas Lilladher called it a major boost and said it would boost India's position as one of the most attractive business destinations. "By slashing corporate tax rate to 25% from 35 % (22% from 30% without exemptions) for existing domestic companies & an extremely attractive rate of 15% for new companies setting up manufacturing operations after 1st October 2019 and commencing operations before 2023, government has rolled out a red carpet that would ensure hundreds of billions of dollars of FDI & FII flows over the medium term," he said.
Madhavi Arora, Economist, Fx & Rates, Edelweiss Securities said, "The effective corporate tax reductions is indeed a big supply side reform and should help spur investment cycle, which has been perpetually crippled. However, the supply side tax reforms generally have relatively longer term economic returns, albeit impact on the revenue side in the near term." "It needs to be seen if the expected revenue forgone (Rs 1.48 tn- 0.8% of GDP) would be partly adjusted by expenditure cuts. If that happens, then it would nullify the fiscal multiplier impact to that extent. That said, I think we are in a state of coordinated policy response both by the government and the RBI," she added.
Sunil Sharma, Chief Investment Officer, Sanctum Wealth Management said, "We welcome the announcement by the Finance Minister. This was a much needed measure, and clearly demonstrates the government's commitment to rejuvenate domestic growth. With fiscal and monetary forces working in tandem, and meaningful big bang reforms being announced, alongside monetary easing, we believe the pervasive negative sentiment that exists today has bottomed and will begin to revive. "
Ajit Mishra, VP Research at Religare Broking said, "The Finance Minister has finally taken strong measures to kick start the economy. The corporate earnings had worsened in the last few quarters mainly due to the ongoing slowdown. The cut in corporate tax rate would mean more income for corporate."