Video editor: Abhishek Sharma
Video producer: Anubhav Mishra
The government has finally woken up and smelt the coffee. Moving ahead of ‘band-aid solutions’, Finance Minister Nirmala Sitharaman announced that corporate taxes will be slashed from 30 percent to 22 percent. When combined with various types of cess, the total corporate tax will be around 25.17 percent.
Further, businessmen who register a manufacturing company after 1 October 2019 will have to pay 15 percent income tax. When all kinds of surcharge and cess will be included, the tax will amount to 17.10 percent. Until now, new investors paid 25 percent tax.
In the previous few days, the government has rolled out a spate of measures, aiming to reverse the economic slowdown. 10 public sector banks were merged to form four banks, and the government tried to increase the FDI influx and rolled back the excess surcharge on FPI. However, neither was effective in alleviating the economy’s dire condition.
The greatest benefit of the new announcement, however, is that companies which invested close to $150 billion in FDI last year will now enjoy 17 percent tax rates by registering new companies. The tax bracket is now equal to that in Singapore. Similarly, the 25 percent tax bracket is equal to that in China.
Amid the US-China trade war, this is the first major step taken by India in the direction of becoming a part of the global supply chain. Coincidentally, the announcement has come a couple of days ahead of PM Modi’s US trip. Without a doubt, this will lend more gravitas to Modi’s words when he asks US businessmen to invest in India.
As far as domestic companies are concerned, nothing can be said for sure. They may use the extra money either to re-invest or use it to pay off their debt, or maybe even use it as dividends to pay shareholders.
Today’s announcement has created a positive sentiment in the market. Looks like the government is using the surplus provided by RBI smartly! It also raises hopes that in the next Budget, the government might provide relief to individual taxpayers.
But the banking sector still faces a liquidity crunch. Everyone still expects more divestments in PSUs as well as land and labour reforms.
The aim of a $5 trillion economy is still a distant dream.
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