Corporate tax cut to cost govt Rs 1.45 lakh crore

Corporate tax cut to cost govt Rs 1.45 lakh crore

The first two should ideally be driven by macroeconomic factors and company fundamentals, but this is rarely the case - and even for businesspeople and investors for whom these two factors matter, they do not matter as much as taxes.

Today's announcements will also encourage multinationals to shift their plants to India, as the government announced that it would tax them at a lower rate of 15 per cent.

The package, announced by finance minister Nirmala Sitharaman in Goa, is designed to rekindle growth in the Indian economy, create more jobs and kick-start an investment cycle when companies have been reluctant to establish new projects.

The new corporate tax rate for domestic companies, excluding surcharges, makes India more competitive than neighboring Bangladesh, where the textile industry is growing, but slightly less attractive than Vietnam, which has wooed businesses affected by the U.S.

In one move, the finance minister has made corporate tax rates in India among the lowest in South East Asia. Sitharaman said aerated drinks will no longer come under the compensation scheme.

The government has pegged the fiscal impact of the 10 percentage points cut in corporate tax worth Rs 1.45 lakh crore in revenue foregone, is 0.7 percent of GDP. GST on hotels charging Rs 1,001 to Rs 7,500 per night per room has been brought down to 12% from current 18%, she said.

Similarly, the tax on room tariff of above Rs 7,500 has been slashed to 18 per cent from the existing 28 per cent.

The cut in the headline corporate tax rate to 22% from 30% was widely cheered by Indian equity markets.

In all, the GST Council revised rates on 20 goods and 12 services. At this time of global economic slowdown, we see this announcement as a decisive move by the Government of India to enhance competitiveness of Indian industry in the domestic and worldwide arena.

GST on wet grinders consisting of stone as a grinder reduced from 12% to 5%. This move could also materially lead to India effectively integrating with the global supply chain and a boost to Make in India campaign!

The minister said the uniform rate of 12 per cent will be applicable for woven and non-woven polyethylene bags.

The Council exempted fishmeal as well as pulley, wheels and other parts for agricultural machinery from GST for specified periods. The option of availing a reduced corporate tax rate needs to be exercised on or before the due date of furnishing the income tax return and, the option once exercised, can not be subsequently withdrawn for the same or any other year.

There were positive reactions across the board to the announcement including from the beleaguered auto industry which has seen a slow down and job losses on the back of weak demand.

GST hiked on caffeinated beverages to 18% plus 12% cess from current 18%.

"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.

"Taxing anything at 28 per cent is not a good sign at all".

GST rate hiked on railway wagon, coaches from 5% to 12%.

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