KPMG lauds government's new corporate tax cuts

11 October 2019 3 min. read
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The Finance Ministry’s move to slash the corporate tax rate will do wonders for the country’s business attractiveness, according to experts at KPMG. The move will come with a hefty price tag however, estimated to be around Rs. 1.5 lakh crores in missed tax income.

Last month, the Finance Ministry announced a drop in corporate tax rates from 30% to 22% for companies that do not already benefit from tax exemptions or incentives. Concessions abound: the ministry also announced that these firms will be exempt from the Minimum Alternate Tax.

These measures exclude further special conditions that have been created for the manufacturing sector. For Indian manufacturing companies established after October 1st 2019, the corporate tax rate is a meagre 15%, in addition to exemption from the Minimum Alternate Tax.

Meanwhile, companies that currently enjoy exemptions or incentives also have something to celebrate, as the Finance ministry slashed their Minimum Alternate Tax from 18.5% to 15%, with a further promise of lower rates after the current tax holiday period expires. Other concessions have been introduced, although these cater to specific cases.

Naveen Aggarwal and Himanshu Parekh - KPMG

These include surcharge waivers for some companies, and waivers for buyback tax for others. According to Himanshu Parekh, who is the Partner and Head of Corporate and International Tax at KPMG India, the reforms are likely to cost the government somewhere around Rs. 1.5 lakh crores in revenue, although the investment has long been deemed necessary.

Despite holding a significant position in the global economy, India is still not considered an easy market in which to do business, particularly amongst the global business community. Lower tax pressure is likely to boost foreign direct investment inflows as well as support domestic businesses.

Among the domestic business segment, the government is highly focused on developing manufacturing capabilities, another key to cementing a strong place in the global economy. Developments in India’s manufacturing sector could take the country’s economy to the much coveted $5 trillion mark.

Government initiatives such as the Goods & Services Tax and the Make in India campaign have all been directed at boosting domestic productivity, and have achieved considerable success, although another big push is the need of the hour. Executives at KPMG have praised the new measures.

Naveen Aggarwal described the move as a “major shot in the arm for the Indian economy courtesy the Finance Minister’s announcements of rationalising corporate tax rate to 22% (minus any other incentives/concessions) and for new manufacturing companies.”

“In the face of global headwinds, this puts India right up on the map as a forward-looking, business-friendly and competitive operating environment. Increased surcharge to not apply on capital gains on listed securities and derivatives in the hands of FPIs. This will provide much-needed liquidity to the capital markets and is expected to turnaround their freefall,” he added.