Lok Sabha passes Bill to effect corporate tax reduction
NEW DELHI, Dec 2 (AGENCIES): Finance Minister Nirmala Sitharaman in the Lok Sabha on Monday said the government’s decision to reduce corporate tax rate was aimed at attracting investment and creating jobs. Gross direct tax collection increased by 5 per cent till November, Finance Minister Nirmala Sitharaman said on Monday as she allayed fears of corporate tax reduction impacting revenue collection.
Replying to a debate on Taxation Law Amendment Bill, 2019 in the Lok Sabha, the minister categorically said there is no decrease in direct tax collection. In fact, there is an increase of 5 per cent in the gross direct tax collection till November this fiscal, she said. Historically, maximum collection of direct taxes happens in the last quarter of the fiscal, she added.
The Lok Sabha on Monday passed a Bill to replace an Ordinance for effecting reduction of corporate tax rates. Taxation Laws (Amendment) Bill, 2019, will amend the Income Tax Act 1961 and the Finance (No 2) Act 2019. It replace the Ordinance which was Promulgated by the President in September.
In the biggest reduction in 28 years, the government in September slashed corporate tax rates up to 10 percentage points as it looked to pull the economy out of a six-year low growth with a Rs 1.45 lakh crore tax break.
Base corporate tax for existing companies has been reduced to 22 per cent from 30 per cent, and to 15 per cent from 25 per cent for new manufacturing firms incorporated after October 1, 2019, and starting operations before March 31, 2023. The companies opting for lower tax rates, however, will not be entitled to claim any rebate or deductions. The main objective of the reduction in corporate tax was aimed at attracting fresh investment in the manufacturing sector.
Sitharaman said several domestic and global firms have expressed interest in investment post announcement of the reduction in corporate tax rate. On the liquidity issue, the finance minister said banks have disbursed about Rs 2.5 lakh crore during their recent outreach programme. Of this, Rs 1.5 lakh crore were fresh term loans. The minister also dismissed contention that the government was averse to criticism.
It is “unfair to say that government is not willing to listen to criticism,” she said, adding that the government does listen and respond. The remarks came against the backdrop of industrialist Rahul Bajaj’s comments that India Inc was afraid of criticising the government. The government’s decision was also necessary to attract investment from multi-national companies, which are wanting to shift operations from China in view of ongoing Sino-US trade war, she said while moving the Taxation Laws (Amendment) Bill, 2019 for consideration and passage.
The Bill seeks to replace the Ordinance which was promulgated by the President in September. The government through the ordinance reduced the corporate tax rate from 30 per cent to 22 per cent, and for new manufacturing companies to 15 per cent. The companies opting for lower tax rates, however, will not be entitled to claim any rebate or deductions.
“We think we will attract investment by reducing tax rate”, she said while stressing that several neighbouring countries and emerging nations have reduced tax rates to attract investment.
She further said that with reduction of corporate tax rate, the effective rate will come down to 25.17 per cent from 34.94 per cent. The effective tax rate for new manufacturing companies, which will be entitled for 15 per cent rate would be 17.16 per, she said. Beside other things, the bill has also provided a negative list of businesses which will not be entitled for concessional tax rate of 15 per cent.
The companies engaged in development of computer software mining, converting marble blocks into slabs, bottling of gas cylinder, printing of books and cinematographic film will not be treated a new manufacturing entities for the purpose of concessional tax. The government, she said, has also partially rolled back the surcharge announced in the budget to attract investment from the foreign portfolio investors (FPIs).