A combination of corporate tax cuts and GST cuts give a big push
The FM’s press conference from Goa, ahead of the GST Council meet, was like a path-breaking budget in itself. Here is how tax cuts dominated on Friday
Corporate tax cuts
The Finance Minister offered a new tax formula under which Indian companies can pay just 22% tax on corporate profits. Of course, in exchange, they will have to forego all exemptions and rebates that are now available. The effective rate of tax, including surcharge and cess, will be 25.17%. Companies will have the option to opt for the 22% formula and they can either do it right away or at a future date. Such decision will be irreversible and going back to the old formula will not be possible after that. This lower corporate tax rate benefit will be available to all Indian companies irrespective of turnover.
Boost to fresh investments
In addition to the normal tax cuts, the government also offered a lower bracket of 15% tax for new companies that set up manufacturing operations between October 2019 and March 2023. This move is expected to give a major boost to fresh investments by companies and also for the Make-in-India program. This formula will also exclude any kind of rebates or exemptions but offer a much lower effective tax rate. However, this benefit will be only for manufacturing companies and not for pure services.
MAT levels rationalized
To make the tax cuts more effective, the government also announced a major rationalization of MAT. Companies that opt for the 22% formula or the 15% formula (for new operations) will be exempt from MAT altogether. However, those companies that continue in the existing formula will also pay MAT at a lower rate of just 15% compared to the current rate of 18.5%. This is logical as once the rates are cut so low, MAT does not really have much of relevance. The lower MAT will also reduce the cost of existing tax paying corporates.
GST rates rationalized
On the day of the GST Council meet in Goa, it was non-GST aspects that really dominated the day. However, there was also some genuine effort on the GST front. For example, the Council cut rates of GST on semi-cut gems and also on contract labor for diamond industry. In addition, the GST Council also gave a boost to the hotels segment by cutting GST across tariff segments; exempting hotels with tariffs below Rs.1000 from GST. The GST on outdoor catering was also cut to just 5% to give a boost to the hospitality business. At the end of the day, one can always remonstrate that the GST Council did not cut the rates of tax on automobiles or on biscuits but there will always be future occasions. For the time being, this will go down as an action packed Friday