Tax cuts will attract investors looking to shift from China: Nirmala Sitharaman

Tax cuts will attract investors looking to shift from China: Nirmala Sitharaman

Tax cuts will attract investors looking to shift from China: Nirmala Sitharaman

Finance minister Nirmala Sitharaman said on Sunday the government's decision to reduce the corporate tax rate for new manufacturing companies to 15% has turned India into an attractive investment destination for firms that want to relocate supply chains from China, including Apple and its component manufacturers. The finance minister on Friday announced the reduction of the corporate tax rate for domestic manufacturing companies from 30% to 22% and for new manufacturing firms from 25% to 15% in a measure aimed at reviving growth in the country's slowing economy. On Sunday, she said India now has the lowest corporate tax rate in Southeast Asia. 

The tax rate in Singapore is 17%, Vietnam 20%, Thailand 20%, Indonesia 25%, China 25%, and the Philippines 30%, according to data reviewed by the finance ministry. 'Companies like Apple and all others [firms] will get benefit [of lower tax regime] automatically. We now don't have to give them specific [tax] exemptions,' Sitharaman said, referring to the decision that reduced the basic tax rate for companies that will be incorporated in India on or after October 1 but commence production by March 31, 2023.

The rate for the new firms has been reduced to 15% provided they do not claim any exemption. The finance minister said that the rationale behind keeping the base rate for existing companies at 22% was to keep the effective tax rate (with surcharge and cess) at around 25%, which would ensure India's competitiveness. Inclusive of surcharge and cess, the effective tax rates are 25.17% for existing companies and 17.01% for new firms incorporated on or after October 1.

Sitharaman said that the tax rates have been significantly reduced to make India more competitive in the global context and there is no sunset clause attached to the move. 'We brought it [tax rates] down. We will hold to it,' she said. It would now be difficult for any government to upwardly revise these tax rates. If any government would attempt that, it would be required to go to Parliament and explain the rationale behind raising tax rates again, which will be difficult, she added. The latest changes will be made through an ordinance, and come as part of efforts to revive gross domestic product (GDP) growth that slipped to 5%, an over six-year low, for the three months ended June 30.

The tax cuts will be effective retrospectively from April 1, the start of the fiscal year, and any advance tax paid by companies will be adjusted. The finance minister ruled out any immediate revision of the fiscal deficit target and any expenditure cut to make up for the? 1.45 lakh crore revenue forgone due to the rate cuts. 'At this point, I do not intend to revise any target,' she said, adding that a review could take place at the revised estimate (RE) stage if required.

She said she has directed the expenditure secretary to conduct weekly monitoring of expenditures by ministries, departments, and public sector companies and nudge them to spend the entire amount budgeted for the current financial year so that all schemes are implemented. Commenting on the rationalization of personal tax rates, the finance minister said that she had not yet conducted a detailed review on the matter. She said the government has not taken a view on the recommendations of the task force on the Direct Tax Code, which was set up to simplify the taxation regime.

'Detailed analysis of the report is still on,' she said. Sitharaman also said the government is focused on the disinvestment of Air India and 23 other cabinet-approved companies and expressed hope that 100% stake of the government in Air India could be divested this financial year. Air India Specific Alternative Mechanism (AISAM) is likely to meet soon to finalize the contours of disinvestment of the flagship carrier, she said.


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