India's government slashed corporate taxes on Friday, giving a surprise $20...
PANAJI, India - India’s government slashed corporate taxes on Friday, giving a surprise $20.5 billion break aimed at reviving private investment and lifting growth from a six-year low that has caused job losses and fueled discontent in the countryside.
Starting from the current fiscal year, any domestic company has the “option to pay income tax at the rate of 22%” as long they do not seek any special tax incentives, the minister said in the western city of Panaji where officials are also considering lowering sales tax on 20-25 products. Foreign firms that have Indian subsidiaries or joint ventures partnerships with Indian companies can also get the lowered corporate tax rates, Sitharaman said.
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.-China trade dispute, according to data compiled by Deloitte.Reserve Bank of India Governor Shaktikanta Das said the moves augur “extremely well” for the economy.
Companies in consumer finance, banks, and hotels that pay upwards of 32% tax will have the maximum benefits, said Jimeet Modi, founder and chief executive officer of Samco Securities and Stocknote in Mumbai.While shares soared, bond yields spiked to a near three-month high on speculation that the government may have to borrow more to meet its expenditure needs for the year, as the measures will mean a revenue loss of 1.45 trillion rupees for the current year.
Modi was re-elected in May with a bigger majority, which stoked hopes of bold reforms to get growth going and staunch the loss of tens of thousands of jobs.“I am not sure how lower tax rates would incentives companies to increase capex, when the private consumption engine has lost steam,” said Rupa Rege Nitsure, chief economist of L&T Financial Services.
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