PANAJI, Sept 20 - In the biggest reduction in 28 years, the government on Friday slashed corporate tax by almost 10 percentage points as it looked to pull the economy out of a six-year low growth and a 45-year high unemployment rate by reviving private investments with a Rs 1.45-lakh crore tax break.
Two-and-a-half-months after presenting her maiden Budget that was hailed as �development-friendly� and �future-oriented�, Finance Minister Nirmala Sitharaman announced cutting corporate tax rate to 25.17 per cent to bring them at par with other Asian countries, such as China and South Korea but at the expense of potentially breaching the 3.3 per cent fiscal deficit target.
Markets cheered the announcement with the BSE Sensex jumping by the most in a decade while the rupee also climbed against the US dollar.
In the fourth tranche of post-budget economic stimulus measures, she cut base corporate tax for existing companies to 22 per cent from current 30 per cent; and for new manufacturing firms, incorporated after October 1, 2019 and starting operations before March 31, 2023, to 15 per cent from current 25 per cent.
This will be subject to the condition that these companies will not avail any other incentive or concession, such as tax holiday enjoyed by units in Special Economic Zones (SEZ) and accelerated depreciation.
The effective tax rate for existing units, after considering surcharges and cess such as Swachh Bharat cess and education cess � which are levied on top of the income and corporate tax rates � will be 25.17 per cent as compared to 34.94 per cent now. For new units, it will be 17.01 per cent as against 29.12 per cent now.
The new tax structure, which will lead to government losing Rs 1.45 lakh crore in revenue annually, is effective from April 1, 2019, and will bring Indian corporate tax rate at par with Asian peers in a bid to attract investments.
Prime Minister Narendra Modi termed the move as �historic� and said the announcements made in the last few weeks show that his government is leaving no stone unturned to make India a better place to do business.
�It will give a great stimulus to #MakeInIndia, attract private investment from across the globe, improve competitiveness of our private sector, create more jobs and result in a win-win for 130 crore Indians,� he tweeted.
The reduction in corporate tax, which India Inc hailed as the one which will revive growth and investment, is the single biggest cut in tax rates since India opened up its economy in 1991.
India had the highest effective corporate tax rate of 38.05 per cent in 1997.
Companies in China, South Korean and Indonesia pay 25 per cent tax, while those in Malaysia pay 24 per cent. Only Japan has a higher tax than India at 30.6 per cent. Hong Kong has the lowest corporate tax rate of 16.5 per cent, while Singapore has 17 per cent rate and Thailand and Vietnam levy 20 per cent tax on companies.
Sitharaman said the latest measures will promote growth and investment, but sidestepped questions on its impact on fiscal deficit. � PTI