Corporate Tax Reform: Industry Outlook

NewsBarons presents the views of industry leaders on the reduction of Corporate tax rates as announced by Finance Minister Nirmala Sitharaman.

Corporate Tax Rate Bonanza for Indian Economy Reboot: Dr Niranjan Hiranandani, Hiranandani Group

www.newsbarons.comAs part of the process of averting an economic slowdown, Finance Minister announced a reduction in Corporate tax rates, brought down to 22% for domestic companies and 15%for new domestic manufacturing companies along with other fiscal reliefs. It is a due corrective step by GoI to uplift investor’s sentiment and prompt investment back in drying up the Indian economy. The move is well intended to revive growth traction of the economy. The fiscal stimulus announced is aligned with ‘Make in India’ the initiative which shall further promote the growth of manufacturing business domestically to help production and eventually impact the consumption.

Rationalization of corporate tax sounds to induce more investments now by the corporates further being vital to turn around the economy, which was looming over extremely depressed market sentiments. The positive rally of investor bandwagon instantly reflected bullish in Indian Stock market by Sensex index surging up. This step puts the Indian Corporate tax regime at par with South East Asian Countries, helping economic buoyancy to generate better revenue.

India Inc. looks forward to a roller coaster festive season tax bonanza to ride the tide of positive sentiments. This positive sentiment will go long way in resurrecting dying economy, but we also hope that supertax on the individuals and HUF would also, be further rationalized at 35% from the currently obnoxious rate of 42% to uplift the end-users spirit.

Tax reform will encourage foreign institutional investors to invest in the country: Anuj Puri, ANAROCK

www.newsbarons.comIn another positive and a bold step to help revive the economy from its slumber, the FM has slashed the corporate tax rates to 25.75% from earlier 30%. This big-bang move will have a rippling impact on all sectors including real estate as it will encourage foreign institutional investors to invest in the country.

In terms of taxation, India will now be at par with many of its Asian peers and hence a major draw for foreign investors who shied away from entering India due to high taxes.

The Indian stock exchange was quick to welcome the move and went on a surge within just an hour. The Sensex saw gain of more than 1,800 points while Nifty jumped over 500 points. This is the highest intra-day gain in a decade, giving investors a gain of INR 5,00,000 crore. This itself reflects that sentiments have gone highly positive.

The chain of announcements made by the Finance Minister in recent past weeks in addressing the growing concerns of various sectors of the economy will go a long way in not just bolstering all-round sentiments but also see its positive ripple impact across all sectors including the real estate. As and when the overall financial health of the economy improves with these slew of measures, there will be heightened activity within real estate – by both actual home buyers and investors alike.

Surplus funds available to companies will be invested in capex and talent: Ajay Piramal, Piramal Group

Ajay PiramalThe announcement made by the Finance Minister today is commendable. With this the Government has signalled that it is listening to the Industry and is willing to embrace it as a partner for progress of the Country. We are certain that this Big Bang reform will kickstart the economy. Surplus funds available to companies will be invested in capex and talent. The NBFC sector will save between Rs. 250 – 300 crore that can potentially be redeployed as loans. In a climate of global slowdown, this reform will make India an attractive destination for FIIs and long term investors. The announcement has brought parity to India’s corporate tax rate compared to that of advanced markets thus making it very competitive.

The measure will bolster growth of industrial real estate development in the country: Ramesh Nair, JLL

www.newsbarons.comThe announcement by honourable Finance Minister, Nirmala Sitharaman proposing to slash corporate tax for domestic companies from 30% to 22% comes at an opportune time when the economy needs a boost in investments.

To give strength to India’s ambitious ‘Make in India’ initiative, the government has proposed a tax rate of 15% for new domestic companies incorporated on or after 1st October 2019 and commences manufacturing by 31st March 2023. The measure is expected to bolster growth of industrial real estate development in the country.

According to the announcement, the total revenue foregone for the reduction in corporate tax rate and other relief estimated is at INR 1,45,000 cr. This quantum of money will act as an incentive to the industry in terms of savings and will result into further investments. Moreover, companies will also have a leeway to pass on the benefit to consumers, thereby reviving demand.

The reduction in Minimum Alternate Tax (MAT) to 15% from the existing 18.5% for companies which do not opt for the concessional tax regime will act as a harbinger of growth. However, there will no MAT applicable for units which will opt for new concessional tax regime. This definitely is a welcome move.

This is likely to help the real estate sector and specifically promote affordable housing. The new proposal will also help in promoting the affordable housing segment. MAT provisions are applicable to the profits of the housing projects eligible for deduction under the clauses of Section 80-IBA. Section 80-IBA grants 100% exemption on profits from affordable housing projects, subject to conditions.

This would specifically support developers operating in special economic zones (SEZ). The real estate sector has been demanding the removal of MAT for SEZ developers. SEZs and their development are keys to the growth of the office segment, logistics & warehousing and manufacturing sectors in the country. Their development has in turn contributed significantly to the overall growth of the neighbouring regions and propelled the housing sector.

A huge step in boosting the overall profitability of corporate India: Shibani Kurian, Kotak Mahindra Asset Management Company

The biggest event of the week was the cut in corporate tax rates as announced by the Finance Minister. With these big bang announcements, the government has provided a direct stimulus via a reduction in corporate tax rate from 30% to 22% (34.9% lowered to 25.2% including surcharge). It has also created a special 17% rate for new companies starting new manufacturing facilities before March 2023. Companies have the option to go for a lower rate or stick to the current rate of 30% if they want to continue to claim exemptions under the Income Tax Act and can move to the lower rate once the exemptions expire. The minimum alternate tax rate has been reduced from 18.5% to 15%.

This is a huge step in boosting the overall profitability of corporate India. This step along with some of the other measures announced including that the enhanced tax surcharge introduced in July 2019 shall not apply to Capital Gains on sale of equity share which is subject to STT (Securities Transactions Tax) would go a big way in restoring confidence in the Indian equity markets. One the biggest problems ailing the investment rate was low corporate savings and, to the extent, this tax cut boosts corporate savings, this is positive structurally for the improvement in private sector investment rate

These steps taken on the fiscal side along with the steps taken by RBI in lowering policy rates and infusing liquidity into the system would be go a long way in terms of helping the economy and the capital markets get back on track and boost consumer sentiment and outlook.

The tax reform is expected to translate into an increase in external investment: Rohit Poddar

www.newsbarons.comIt is a historic announcement on tax reforms by the Ministry of Finance. Slashing the corporate tax from 35% to 25.17% followed by a significant reduction in MAT will foster a constructive environment for the new ventures. These reforms will make the country one of the most favourable destinations for foreign investors. It is expected to translate into an increase in external investment and CAPEX in the economy.

The government has taken a call to bear the burden of fiscal deficit to boost the economy but the new tax structure is expected to attract more external investment which will eventually trim down the rough edges of deficit for the economy.

The Government is absolutely determined to revive the economy: Puneet Dalmia, Dalmia Bharat Group

Puneet DalmiaToday’s reduction in corporate tax sends a powerful signal that the Government is absolutely determined to revive the economy. It also demonstrates Government’s sensitivity and its faith in the corporate sector to contribute to the economic revival. This will improve the ability of India Inc to make fresh investments, speed up projects, and make a positive impact on job creation.

It’s a very bold move and will improve the sentiment dramatically.

Improving India’s competitiveness with other countries: Rohit Gera, Gera Developments

Rohit Gera The welcome move by the government to reduce tax rates is a big bang signal to the corporates and goes a long way in improving India’s competitiveness with other countries.

Though these tax breaks could have been linked to parameters such as accelerated depreciation, job creation etc, sticking to the original path of simplification and elimination of conditionality in the tax code is commendable.

Real estate has been steered towards affordable housing with tax benefits. Companies with ongoing projects availing the deduction under section 80-IB, may not immediately benefit from the lower tax rate till these projects are completed.

Government has delivered on its promise to reduce corporate tax: Kamlesh Patel, Asian Granito India

Kamlesh PatelIn one sentence, the series of announcements will provide a much needed relief to the economy and the industries, boost investment and manufacturing activities aiming at job creation and lend a helping hand in fighting global slowdown. Government finally delivered on its promise to reduce corporate tax. Announced Tax reforms along with series of important announcements will help revive the manufacturing sector and consumption in the economy. These radical and transformative measures should go a long way in making ‘Make in India’ successful and right step towards becoming a US $ 5 trillion economy by 2025.

A huge booster for Make In India and employment: Sunil D’Souza, Whirlpool India

Sunil D'SouzaThe announcements on tax today are signs of the government following through with firm actions towards the vision of a $5 trillion economy. The reduction in the corporate tax rate to 22% will definitely come as a relief to the economy which has been going through a rough patch lately. The focus on reducing the corporate tax to 15% by new manufacturing units is a huge booster for both “Make In India” and therefore manufacturing employment. Permitting companies to use their 2% CSR spend on incubation will jump shift R&D and Innovation in the country.

India’s tax rate at par with Asian peers: Jignesh Madhwani, Torin Wealth Management

Jignesh MadhwaniThe reduction in corporate tax rates follows a series of steps to boost demand and investments after growth slowed to 5% in the quarter ended June. The move puts India’s tax rate on par with Asian peers and will boost efforts to attract investments as companies look for alternative destinations to sidestep supply chain disruptions from the U.S – China trade war. The government has taken a bold and proactive step to bring the much-needed tax reforms, which will boost investment and also aid to private cycle capex. The lowering of corporate tax rates will widen the tax net and gradually bring in more revenues to the government. Overall, the move will make Indian companies globally competitive, a welcome step to arrest slowdown and lift up the market sentiments.

The reform will boost the current economic growth rate: Farroukh Kolah, SOTC Travel

Travel and Tourism industry is a vital contributor to the country’s growth. The announcement on lowering the corporate tax from 30% to 22%, which is now at par with the South Asian countries, will have a significant and positive impact on the economy. The reforms undertaken by the Government will help businesses with higher post-tax profits hence incentivizing investments into the country and will boost the current economic growth rate.

We expect an increase in the overall growth and development of the economy: Rahul Grover, SECCPL

Rahul Grover India has one of the highest corporate tax structures at currently 30% in the world and the corporate tax rate cut to 22 % is a laudable initiative which will help revive the economy. With this reduction and revised tax measures, we can expect an increase in the overall growth and development of the economy. The additional capital which will be saved can be deployed back into the business for future investments of the company. As the festive season is underway, this move is sure to improve sales and accelerate revenue generation within the business.

Significant steps that augur well for helping the economy outgrow the current slump: Kumarmanglam Vijay, J Sagar Associates

Kumarmanglam VijayGovernment’s move to announce the sweeping tax changes is unprecedented and the fact that these are being implemented through an ordinance in mid of the year gives confidence that it is willing to do all it can to spur the economic activity.

Change in tax rates applicable to corporates are:

1. Reduction in corporate tax rate to 25.17% (without any exemptions/incentives) for any domestic company. This should help large corporates invest in augmenting the businesses further.
2. Companies incorporated on or after October 1, 2019 and making fresh investment in manufacturing can opt for tax rate of 17.01% (without any exemptions/incentives).
3. Other companies intending to avail exemptions/incentives too can avail tax rate of 22% after the exemptions/incentives expire. Rate of Minimum Alternate Tax (MAT) has been reduced for them to 15% and other two categories have been exempted from MAT.

Capital gains earned by investors domestic investors as well as FII’s in equity in capital market Investors too have been exempted from high surcharge rates enhanced in July this year. Finance Minister has also exempted buybacks announced by listed entities before July 5th 2019 from buyback tax. Overall, very significant steps that augur well for helping the economy outgrow the current slump and should boost the investor confidence.