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Corporate Tax rate cut to deal with economic challenge: FM

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Nirmala Sitharaman

New Delhi, Dec 2 : Union Finance Minister Nirmala Sitharaman on Monday told Parliament that the decision to cut corporate tax rate for domestic companies was necessary post the July Budget to deal with the challenges in the economy.

In her reply to the discussion in the Lok Sabha on the Taxation Laws (Amendment) Bill 2019, which seeks to change the income tax law for lower corporate tax rate options for domestic firms, she said that the cut helps all small and big businesses registered under the Companies Act.

Various opposition members among the 25 members who participated in the debate, however, cornered the government over GDP growth rate which dipped down to 4.5 per cent in the second quarter of 2019-20 – lowest in past six years and advised the government to take suggestions from former Prime Minister and noted economist Manmohan Singh.

Sitharaman said: “You have presented the Budget in July, but if there are challenges coming out in the economy, is it not my duty, therefore, to respond and not waiting for the next budget to answer that we need the sanctity. No, we wanted to be a proactive government.”

Noting it was felt that there was an urgent need to take additional fiscal measures to attract investment, stimulate growth and also to create job opportunities, she said that keeping in mind the ongoing trade war between the US and China and with indications that many multinational companies want to get out of China, it was necessary to quickly take a call in reducing the corporate tax.

The Finance Minister also said it was noticed that many countries, particularly in the neighbourhood and in Southeast Asia, had reduced corporate tax and were able to attract a lot of investment and create job opportunities.

“Thailand and Vietnam had reduced their corporate tax to 20 per cent. Singapore was at 17 and other countries were seriously contemplating bring down the rates.”

“In particular, when the corporate tax rates were reduced by the Asian developing countries, an emerging market who actually complete with India to attract investments, provided that we were able to provide some impetus in the form of reducing the corporate tax.”

However, as the Parliament was not in session and in view of the urgency, the Taxation Laws (Amendment) Ordinance, 2019 was promulgated on September 20, 2019, she said.

“An option was provided to all existing domestic companies to pay tax at 22 per cent which will have an attentive rate of 25.17 per cent after including the surcharge of 10 per cent as against the existing the highest effective corporate tax of 34.94 per cent.

“We also came up with a reduction of corporate tax rate for new manufacturing companies which will be going to start business as of the date we have given of October 1, 2019,” she said.

Currently, domestic companies with an annual turnover of up to Rs 400 crore pay income tax at the rate of 25 per cent. For other domestic companies, the tax rate is 30 per cent. The Bill provides domestic companies with an option to pay tax at the rate of 22 per cent, provided they do not claim certain deductions under the Income Tax Act.

The Bill provides new domestic manufacturing companies with an option to pay income tax at the rate of 15 per cent, provided they do not claim certain deductions. These new domestic manufacturing companies must be set up and registered after September 30, 2019 and start manufacturing before April 1, 2023.

A company can choose to opt for the new tax rates in the financial year 2019-20 (assessment year 2020-21) or in any other financial year in the future. Once a company exercises this option, the chosen provision will apply for all subsequent years.

Provisions regarding payment of Minimum Alternate Tax (MAT) will not apply to companies opting for the new tax rates.

The Ordinance reduces the MAT rate (applicable for companies not opting for the new tax rates) from 18.5 per cent to 15 per cent with effect from financial year 2019-20, while the bill amends this provision by making it effective from 2020-21.

Supporting the Bill, NCP’s Supriya Sule said the government needs to be proactive but sought to know that if the direct tax collection has substantially dropped how “we are going to cover this”.

Sule advised the government to take note of concerns raised by businessman Rahul Bajaj and leaders Manmohan Singh and P. Chidambaram as suggestions, not as criticism.

Mentioning that he does not have any fundamental objection to the essence of the legislation, Congress leader in the house, Adhir Ranjan Chowdhury flagged how the country is “reeling under severe economic slowdown”.

“Sound economy is a sound understanding to be brought into action. It is a calculation. It is a doctrine of proportion. It is a foreseeing excellency. But this government has been lacking vision, mission and long term perspective plan. That is why it had to resolve to such kind of measure reaction. It is simply a panic reaction that has been culminated in invocation of Ordinance on September 20.

“I want to suggest you (Nirmala Sitharaman) to talk to Dr Manmohan Singh without any hesitation and take suggestions from him. If you want to save the country, you will have to go to Manmohan Singh because he had said that the GDP will go down 2 points at the time of demonetisation and it happened. He categorically said that India’s financial situation will go down at the time of GST and it happened,” he said.

DMK’s A. Raja also raised the economic slowdown issue, saying the government’s approach is not being supported by own economists, including Manmohan Singh, Raghuram Rajan, Urjit Patel, Arvind Panagariya, Surjit Bhalla, and “still the government wanted to say that their calculation is wrong”.

The Bill, which seeks to amend the Income Tax Act, 1961 and the Finance (No.2) Act, 2019, was later passed by voice vote.

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Sensex up 129 pts, Yes Bank tanks 7%

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Sensex equity Nifty

Mumbai, Dec 11 Sensex advanced 129 points during the early trade on Wednesday while the Nifty traded slightly below the 11,900 mark.

Yes Bank fell over 7 per cent after it postponed the decision to approve or decline the binding offer of $1.2 Billion — 60 per cent of the total capital the bank aims to raise — submitted by mysterious investor Erwin Singh Braich on Tuesday.

Yes Bank, however, said it is willing to “favourably consider the offer of $500 Million of CitaxHoldings and Citax Investment Group and the final decision regarding allotment to follow in the next board meeting..”

At 9.59 a.m., the Sensex was up 129.98 points or +0.32 per cent at 40,369.86. The Nifty jumped 35.05 points at 11,891.85.

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DoT cracks whip, tells telcos to pay pending AGR dues fast

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Mobile tower

New Delhi, Dec 10 : The Department of Telecom (DoT) has asked telecom licencees to speed up the process of self-assessment of adjusted gross revenue (AGR) based dues and the payment of over Rs 1.47 lakh crore and submit comprehensive representation on previous issued demands latest by December 13, 2019.

The letter issued by the DoT has been viewed by IANS. The deadline for payment of AGR dues is January 23, 2020.

Three telcos — Airtel, Vodafone Idea and Tata Tele — have filed review petition of the Supreme Court order in October, which paved the way for the DoT to seek AGR dues, penalty and interest from the telcos.

“The comprehensive representation shall be submitted within a week latest by December 13, 2019,” DoT said in the letter to the telecom licensees, adding that majority of the licence fee assessments have been settled after the SC judgement and for any remaining issues, a comprehensive representation needs to be submitted to the department.

In light of the Supreme Court order on AGR computation, all the annual assessment for licence fees and spectrum usage charges for relevant years are being re-examined.

“And now since all the earlier demands are being re-examined with respect to the SC judgement, you are requested to kindly submit a comprehensive year-wise, circle-wise representation except for issues which have been decided by the SC,” the letter said.

“In this regard, it is pointed out that over a course of time, multiple representations related to LF (licence fee) assessments were received from various licencees for consideration by the department,” the DoT letter added.

Further, self-assessment of dues and payments along with the submission of relevant documents as per a licence finance wing letter of November 13 needs to be expedited, the letter said.

Any issues should be pointed out in the comprehensive representation to be submitted but in no case the self assessment of the dues and payments along with the submission of relevant documents are to be delayed, it pointed out.

The Supreme Court decided in favour of the government’s contention that all revenues, including that from non-core sources, would be counted in calculating AGR. Licence holders have to pay about 8 per cent of AGR to the DoT as fees. Telcos also pay about 3-4 per cent of AGR as spectrum usage charges.

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RBI seen holding rates in the remainder of FY20

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Reserve Bank of India RBI

New Delhi, Dec 10 : Notwithstanding growth pangs, the Reserve Bank is expected to maintain the accommodative monetary easing pause till the end of FY20 to contain retail inflation levels, say industry observers.

Economists and industry experts pointed out that an imminent rise in retail food inflation over the next two months will override growth concerns and deter RBI to go in for a rate cut during the final monetary policy review for FY20 in Februray.

“In our view, the CPI inflation will rise sharply in the next two prints. So, we expect a pause in the February 2020 policy review,” said ICRA Principal Economist Aditi Nayar.

“Further monetary easing may not be sufficient to trigger a rapid revival in economic growth in the current situation.”

Recently, RBI’s monetary policy committee in its fifth review of the current fiscal maintained the repo, or short-term lending rate for commercial banks at 5.15 per cent.

The apex bank had reduced key lending rates during the last five policy reviews to reverse the current consumption slowdown that has plagued the country’s economy.

RBI Governor Shaktikanta Das defended the decision by recalling the “primary objective” of the central bank was inflation targeting and price control.

He pointed out that headline inflation is currently high, largely due to rise in food inflation. Das added that food inflation will remain “very high” during January-March, which prompted the RBI to hit the pause button on rate cuts.

Last month, macro-economic data showed that a substantial rise in food prices had lifted India’s October retail inflation to 4.62 per cent from 3.99 per cent in September.

The National Statistics Office is slated to release the macro-economic data point of Consumer Price Index for November on December 12, followed a day later by Wholesale Price Index.

Besides, RBI reduced the country’s FY20 GDP growth forecast from 6.1 per cent in the October policy to 5 per cent.

“Interestingly, the RBI seemed content with the pace of transmission and no longer sees the transmission as staggered and incomplete,” Edelweiss Securities’ Economist Madhavi Arora.

“We think that this easing pause is temporary. Even so, our estimates suggest inflation will likely remain above 5 per cent in 4QFY20 and could constrain a rate cut in February.”

Furthermore, RBI may await the budgetary announcements and the fiscal measures thereof before any decision to revise the rates.

According to Acuite Ratings & Research Lead Economist Karan Mehrishi: “At this point, an accommodative policy in pause mode appears likely till Q1 FY21.

“While there may be a potential risk of a rate hike if the inflation print remains persistently elevated along with a comfortable liquidity scenario, it is likely that the MPC will abstain from such action unless there is a modest revival in growth rate.”

(Rohit Vaid can be contacted at [email protected])

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