Corporate tax cut to cost govt Rs 1.45 lakh crore

Finance Minister Nirmala Sitharaman announced a corporate tax cut for domestic firms and new domestic manufacturing companies at a press conference on Friday ahead of the GST council meet. A press note released by the government stated that the revenue estimated to be foregone after the corporate tax cut would be Rs 1.45 crore.

The tax rate has been cut to 22 per cent from the existing 30 per cent. The effective tax rate for these companies would be 25.17 per cent, inclusive of all surcharge and cess. For new manufacturing companies, the existing tax rate of 25 per cent has been brought down to 15 per cent.

"In order to promote growth and investment, a new provision has been included in the Income Tax act that allows any domestic companies an option to pay income tax at the rate of 22% without exemptions. Amendments will be made through an ordinance to IT Act. These companies will not be required to pay MAT," said Sithraman in a press conference.

Nirmala Sitharaman said that any domestic company would get an option to pay income tax at a rate of 22 per cent if they do not avail any incentive.

The minister added that tax concessions will bring investments in Make in India, boost employment and economic activity that will lead to more revenue.

Reserve Bank of India Governor Shaktikanta Das who was speaking at a session in the India Today Conclave 2019 during the minister's announcements said that this was a bold move. "This is definitely a bold measure... will augur very well for our economy," he said.

The loss of revenue after the corporate tax cut is likely to impact the fiscal deficit target that was pegged at 3.3 per cent of the GDP at the Union Budget 2019. The fiscal deficit was pegged at Rs 7.04 lakh crore, but the revenue loss would push it up to Rs 8.48 lakh crore, which would be 3.97 per cent of the GDP.

Congress leader Jairam Ramesh said that while the move is a welcome one, it is doubtful whether it will revive investments. "A headline-itis afflicted, panic-stricken Modi Sarkar has cut corporate tax rates less than 3 months after a Budget and 4 months before the next one. This is welcome but it is doubtful whether investment will revive. This does nothing to dispel fear that pervades in India Inc," he tweeted.

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Also read: 'Bold decision, will help revive economy': RBI Governor Shaktikanta Das' first reaction to corporate tax cut