Tax cuts are boosting India's profile internationally

The Indian government’s efforts to portray a pro-business stance – most recently through a major slash in corporate taxes – appears to be paying off in a global setting, according to Global Tax and Legal Services Head at PwC Colm Kelly. Speaking to the Economic Times, he revealed that businesses across the globe are taking notice of developments in India.

Kelly’s comments come weeks after the government of India made significant cuts to corporate tax rates across the country. The government has taken a hit of Rs 1.5 lakh crores in collections after dropping the corporate tax rate from 30% to 22% for businesses in general, and all the way down to 15% for manufacturing companies.

Manufacturing companies are also exempt from the minimum alternate tax (MAT), which signals the government’s drive to boost the Make in India campaign. Despite the high cost incurred by the government, analysts have been welcoming of the new policy and all that it entails.

KPMG India tax executives immediately applauded the policy, indicating that it increased business attractiveness in the country and stating that it put India “up on the map” in the global business environment. The comments speak to India’s relatively poor reputation when it comes to ease of doing business.

Despite being one of the largest and fastest growing markets in the world, experts have highlighted that India continues to suffer from barriers such as inefficiency and regulatory restrictions, which is holding the country’s growth back. The tax cut is a signal that the government is willing to work through these barriers.

According to Kelly, this signal has been well received globally. “India has always been on the agenda for foreign investors because of the scale of access to market and business opportunity it represents…It (corporate tax rate cut) does two things. It improves return on investment, and I think it sends a very strong signal to investors, about India being serious, about being open for investment and for business,” he said.

On the road ahead, he said that steps now need to be taken to provide more clarity and certainty to foreign investors. “We need to have strong dispute resolution mechanisms in place...getting prior certainty on certain positions for investors is also important,” said Kelly.

For now, the new cuts are likely to offer a considerable boost to the Indian economy, not only by incentivising foreign investment, but also by creating a more open domestic business environment. According to McKinsey & Company India Managing Director Gautam Kumra, the new policies could be an important step in the direction of a $5 trillion economy.