Bold Move by Government – Corporate Tax Cut To 25.2%
To save the crashing down of the economy, the government has decided today to cut corporate tax on domestic firms. Manufacturing which is one of the top contributors to the GDP (Gross Domestic Product) was also been affected by fewer demands across all sectors.
After Finance Minister Nirmala Sitharaman announced this market rose with immediate effects, after few days of rough trading, S&P BSE Sensex rushes over 2,100 points and the NSE Nifty scale above 11,250 marks. FM Nirmala Sitharaman said that domestic companies are very happy now but she knows what effect it will cause to India’s fiscal deficit target.
- FM Nirmala Sitharaman said at a press conference in Goa that the firms incorporated on or after 1 October 2019 that want to invest a fresh investment in manufacturing, may or may not pay income tax at 15%.
- The new effective tax rate will be deducted from 35 percent to 25.2 percent including all checkout fees (surcharge) and this is only applicable to those firms who are not availing any incentives. After calculating tax without charge it will be 22 percent to 30 percent.
- This new structure of tax is in effect from 1st April 2019 and the change in this will be made by passing an ordinance revise Income Tax Act, 1961. She also said that the government has to suffer a sum of 1.45 lakh crore this year to carry out this decision to deduct corporate tax.
- It is estimated by the government that the tax earnings from this year to March is Rs. 16.5 lakh crore. FM Nirmala Sitharaman said that the government is well aware of the impact that this will do to the fiscal deficit. They also targeted to bridge the budget gap to 3.3 percent of GDP this year.
- Any tax which was paid in advance will be adjusted in the future. FM also said that fresh companies don’t have to pay MAT (minimum alternate tax).
- The higher surcharge on the rich companies which was announced in the budget this year will not be applied to the capital gain on selling equity shares in a firm that has to pay STT (securities transaction tax).
- These measures are the steps that are announced by the government to increase demand and investment as the growth of the economy has slowed to a record 6 year low of 5 percent.
- The automobile industry that is major in the manufacturing sector contributes to the GDP the most and it has been in loss, due to less customer demand. Many car manufacturing companies have stopped or slowed down the production and some are just cutting jobs.
- Banks are also afraid to lend money to them who are owing to a liquidity bite caused by this crash.
- The extra production cost due to the new rules demands to acquiescent with safety standards, whereas a 28 percent GST which was introduced in 2017 has reduced the demand.