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Automotive Product Finder Magazine | Corporate tax cut may revive economy and boost auto sales
Corporate tax cut may revive economy and boost auto sales
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Mumbai; September 21, 2019
Union Finance Minister Nirmala Sitaraman, on September 20, 2019, announced a slew of measures that included slashing of corporate tax to 22 per cent for domestic companies (from 30 per cent) to bolster growth and revive economy. As per the new provision, any domestic company has an option to pay income-tax at the rate of 22 per cent subject to condition that they will not avail any exemption/incentive. The effective tax rate for these companies will be 25.17 per cent inclusive of surcharge & cess. Also, such companies will not be required to pay Minimum Alternate Tax (MAT).
Terming it unprecedented and bold move, Vikram Kirloskar, President, CII, said, “Finance Minister’s mega corporate tax stimulus is a major move to boost investor’s sentiments, encourage manufacturing and awaken animal spirits in the economy. Cut in corporate tax from 30 per cent to 22 per cent without exemptions has been a long standing demand of industry and is an unprecedented and bold move by the government.”
Vinod Aggarwal, MD & CEO, VE Commercial Vehicles (VECV), added, “The new tax reforms are an excellent initiative from the Government of India and a step in the right direction. We welcome the reductions in the corporate tax rates which were quite high earlier. This should help the industry to grow with a due higher investible surplus now.”
In order to attract fresh investment in manufacturing and thereby provide boost to ‘Make-in-India’ initiative, the Government has reduced the corporate tax for new domestic manufacturing company to 15 per cent. This benefit will be available to companies which do not avail any exemption/incentive and commences their production on or before March 31, 2023. The effective tax rate for these companies will be 17.01 per cent inclusive of surcharge & cess. Also, such companies will not be required to pay MAT.
“This is a welcome structural change and comes as a great respite to corporates. This positive move from the Government of India will lead to further investments in the country as well as create more business opportunities. The ‘Make in India’ initiative will thus get a further impetus,” said Shekar Viswanathan, Vice Chairman and Whole-time Director, Toyota Kirloskar Motor.
The decision to bring down tax rates for new manufacturing companies makes Indian tax rates competitive with other Asian countries thus incentivizing multinationals, looking for an alternative to China, to shift their manufacturing base to India. “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. FICCI is sure that this trigger will lead to a virtuous cycle of investments, growth and higher employment. We are grateful to the Finance Minister and the government for being bold and resolute in its approach towards the economy and addressing the problems in a very comprehensive and focused manner,” commented Sandip Somany, President, FICCI.
As far as automotive sector is concerned, Shekar Viswanathan believes that on a mid to long term basis, the government should consider the merits of moving towards a carbon (fuel efficiency)-based GST taxation policy which will not only lead to huge fossil fuel savings but will also help in lowering emissions.
The Government has also decided to allow corporates to spend CSR 2 per cent fund on incubators funded by central or state government or any agency or public sector undertaking of central or state government, and, making contributions to public funded universities, IITs, national laboratories and autonomous bodies (established under the auspices of ICAR, ICMR, CSIR, DAE, DRDO, DST, Ministry of Electronics and Information Technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting SDGs.
“The decision to allow CSR funds to be used for supporting incubators set up by central and state governments as well as supporting Universities, autonomous institutions as well as research bodies that are publicly funded clearly indicates that the government wishes to promote PPP in scientific research and development and make India move up the innovation ladder," said Somany.
According to Finance Ministry officials, the total revenue foregone for the reduction in corporate tax rate and other relief is estimated at Rs 145,000 crore.
Corporate Tax Reduced To 22%
Toyota Kirloskar Motor
Finance Minister Nirmala Sitaraman
Corporate Tax For New Manufacturing Companies
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