View: FM Nirmala Sitharaman surpasses many expectations

By Vikram Doshi, Partner-Tax & Regulatory, PwC India
Amidst the backdrop of slowing economy and reducing competitiveness, the need of the day was a set of solid tax and economic reforms. While some form of stimulus was expected, what was delivered by the finance minister surpassed many expectations and pleasantly surprised everyone.

For sometime now, the industry wanted the government to reduce corporate tax rates to 25% as per its earlier promised road map. The finance minister surpassed this expectation and introduced an across-the-board rate of 22% for all domestic corporate taxpayers subject to the corporates not claiming any exemptions or incentives. While withdrawal of exemptions and incentives was expected in due time, the government has provided enough motivation to corporates to choose the path of paying taxes at a reduced rate and give up incentives and exemptions.

The key takeaways from the finance minister’s announcements and the ordinance that followed are as under:
— An option to pay corporate tax at a reduced rate of 22% is provided to every domestic company, irrespective of the turnover, subject to the condition that no incentives or exemptions are availed. The effective tax rate works out to 25.17% after applying the revised reduced surcharge.

—A domestic company which does not opt for the concessional tax regime due to existing exemptions or incentives will pay tax at the rate of 34.94% or 29.12%. A good thing is that such companies can opt for the concessional tax regime after the expiry of their incentives.

— With a view to boost manufacturing and to provide thrust to the ‘Make-in-India’ initiative of the government, an option to pay corporate tax at the rate of 15% is now provided to any new domestic company established post October 1, 2019, and making fresh investment in manufacturing. The condition of not availing any exemption or incentive remains with an additional requirement of commencing production on or before March 31, 2023. The effective tax rate for such companies will be 17.16%.

— Companies that opt for the incentireduced rate of 22%/15% would not be required to pay Minimum Alternate Tax (‘MAT’). The MAT rate itself has been reduced from the existing 18.5% to 15%.

— Losses of earlier years attributable to the exemptions and incentives will not be available and will lapse once the reduced rates are opted.

— The enhanced surcharge announced earlier has been rolled back for FPIs and domestic investors alike in respect of capital gains, thereby providing impetus to the capital markets.

—Listed companies which have made buyback announcements before July 5, 2019, would not be subject to buyback tax introduced earlier this year.

There are some questions nonetheless like the fate of existing MAT credits. What will definitely follow is some degree of number crunching as corporate India decides on what regime of taxation it chooses. Nonetheless, what is certain is that India today has one of the lowest corporate tax regime in the region, thereby setting the stage for impetus to the economy, ability to attract foreign direct investment and provide a viable alternative for manufacturing in the backdrop of global trade tensions.

Hopefully, this will kickstart the growth engine leading to higher consumption, increase in tax compliance and collections and generation of much desired employment.

With inputs from Rony Antony, Partner, PwC India