by Santosh Sinha
In continuation to government’s efforts to bring the economy back on the growth track, Finance Minister Nirmala Sitharaman today proposed to slash the corporate tax rate for domestic firms and new domestic manufacturing companies. As per the new announcement, the current corporate tax rate has been brought down to 22% from 30%. The effective tax rate will be 25.17% inclusive of all surcharges and cess for such domestic companies. For new manufacturing companies, the existing tax rate of 25% has been brought down to 15%. The effective tax rate after surcharges and cess will be 17%.
This is a huge boost to the corporate sector. A sudden surge of more than 1600 points at Sensex testifies market’s mood over this announcement. As per some of the economists and market experts, this announcement by the Finance Minister is considered o be one of the major reforms in the recent times and will have a lasting impact on new companies looking to enter India. Apparently, this was also the most important recommendations of the tax economists to the government.
The real estate sector, too, feels jubilant by this move. As the sector is heading to the festive season, this announcement will surely boost the overall market sentiments. It will also, to some extent, encourage the developers to cut the price of their inventories to garner sales. Not to forget, the government on last Saturday had announced the formation of a stress fund of Rs 10,000 crore to bail out the struck projects in affordable and mid-housing segments. As per ANAROCK’s Anuj Puri, ” 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.” Mr. Puri also feels, ” 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.”
CREDAI, the real estate developers’ body, which had earlier expressed its apprehension on not including all the sectors in the stressed fund, has welcomed today’s announcement. Mr. Satish Magar, President CREDAI National, said, ” FM’s generous reduction in corporate tax makes India the most competitive investment destination and beckons entrepreneurial activity to reach new highs. The series of announcements by FM are most reassuring as they tell of the Government being sensitive to the economic needs of the people. We are most hopeful that the special needs of housing would soon get addressed to further accelerate the investment cycle.” Mr. Anshuman Magazine from CBRE says, “The lower tax rates, shows the government’s commitment towards reigniting the economy’s growth engines and augurs well for the broad economy as well as entrepreneurs. Further, the boost to the manufacturing ecosystem will not only generate jobs and lead to wealth creation but will also have cascading impact on other sectors including real estate and is likely to push demand for warehousing and commercial real estate space.”
As per Finance Minister’s statement, “Tax concessions will bring investments in Make in India, boost employment and economic activity, leading to more revenue.” Amidst the ongoing trade war between the United States and China where the majority of the companies operating from China look towards shifting their base to other South-East Asian countries, this announcement is going to create a remarkable impact. Due to the increased taxes by the US government on ‘Made in China’ products, it is getting difficult for them to operate from China. With today’s announcement, the Government of India has given a very clear message to those companies.