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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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SC seeks Centre, RBI reply on levying interest charges during moratorium

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Rupee currency

New Delhi, May 26 : The Supreme Court on Tuesday issued notice to the Centre and Reserve Bank of India on a plea challenging the levy of interest on loan during the stipulated moratorium period.

A bench comprising Justices Ashok Bhushan, S.K. Kaul and M.R. Shah asked the Centre and RBI to file their response within a week.

The plea has been filed by a borrower, who is aggrieved by the March 27 RBI notification. This notification allows interest on the loan to be levied during the moratorium period, which has been extended up to August 31.

Senior advocate Rajiv Dutta, representing the petitioner, contended before the bench that the moratorium has been extended to 6 months, from the initial 3 months. Dutta argued that the final accounting for his client, regarding the interest should be done after the decision of the top court on the matter.

The plea argues the interest on loan during moratorium is unconstitutional, as during lockdown, people’s income has already shrunk and people are under financial crisis.

Dutta, seeking relief, insisted that his client should not be penalized, and interest should not be added to the loan amount during this period,” argued Dutta.

He also informed the apex court that replies were being filed without any formal notice being issued. The bench took this argument into consideration and issued formal notice.

On March 27, the RBI had ordered a 3-month moratorium on the payment of all kinds of installments — EMIs or credit cards or outstanding term loans — for the period between March 1, 2020 and May 31, 2020.

The plea argues the outright “capriciousness” and “arbitrariness” of the RBI notification as it acts as a burden on borrowers like the petitioner, which violates principles of natural justice.

On May 8, the apex court had allowed Solicitor General Tushar Mehta time to seek instructions from RBI and the Centre on the issue.

“While granting the relief of moratorium during the lockdown to borrowers, the action of imposition of interest during the moratorium period is completely devastating, wrong and, in a way, has taken away the benefit of imposing moratorium. This has caused hindrance in right to life guaranteed by Article 21 of the Constitution, 1950 in furtherance of right to life, including right to livelihood, which is a pre-requisite to the fundamental right guaranteed under Article 21 to people of India”, said the plea.

The petitioner said in the present scenario, when all the means of livelihood have been curtailed by the Centre by imposition of complete lockdown pan India, due to worldwide outbreak of Covid-19 pandemic and the petitioner being a citizen of India has no way to continue his work and earn livelihood, imposition of interest during the moratorium will defeat the purpose of permitting moratorium on loans.

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India’s GDP likely to contract 5% in FY 2020-21: Crisil

“We estimate the fiscal cost of this package at 1.2 per cent of GDP, which is lower than what we had assumed in our earlier estimate (when we foresaw a growth in GDP),” it said.

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National debt under Modi govt surges

New Delhi, May 26 : Days after the Reserve Bank of India (RBI) said that India’s GDP growth for the financial year 2020-21 may remain in the negative territory, CRISIL has projected that the country’s economy contract by 5 per cent this fiscal, downgrade from its previous estimate of 1.8 per cent growth.

In a report, Crisil said that although non-agricultural GDP is expected to contract 6 per cent, agriculture could cushion the blow by growing at 2.5 per cent.

It said “things have only gone downhill since” its previous forecast of 1.8 per cent growth on April 28.

The report noted that as per the available data, in the past 69 years, India has seen a recession only thrice, in fiscal years 1958, 1966 and 1980. The reason was the same each time, a monsoon shock that hit agriculture, then a sizeable part of the economy.

“The recession staring at us today is different. For one, agriculture could soften the blow this time by growing near its trend rate, assuming a normal monsoon. Two, the pandemic-induced lockdowns have affected most non-agriculture sectors,” it said, adding that the global disruption also has upended whatever opportunities India had on the exports front.

Laying down the factors for the downward revision GDP outlook, Crisil said that latest studies by the Public Health Foundation of India and the World Health Organization suggest the pandemic spread could peak by mid-July, implying that even if the nationwide lockdown is lifted after May 31, states with high and rising COVID-19 cases could continue with restrictions, which will be a drag on the economy.

It, however, said that on the positive side the Indian Meteorological Department expects the southwest monsoon this year to be 96-104 per cent of the long-period average, which augurs well for agriculture and crude oil prices are expected to average $30 per barrel in fiscal 2021, cushioning the economy.

Talking of the economic package recently announced by the Centre, it said that the package has some short-term measures to cushion the economy, but sets its sights majorly on reforms, most of which will have payoffs only over the medium term (more details in the next section).

“We estimate the fiscal cost of this package at 1.2 per cent of GDP, which is lower than what we had assumed in our earlier estimate (when we foresaw a growth in GDP),” it said.

It said that successive lockdowns have a non-linear and multiplicative effect on the economy and a two-month lockdown will be more than twice as debilitating as a one-month imposition, as buffers keep eroding.

Partial relaxations continue to be a hindrance to supply chains, transportation and logistics, it said, adding that unless the entire supply chain is unlocked, the impact of improved economic activity will be subdued.

“Therefore, despite the stringency of lockdown easing a tad in the third and the fourth phases, their negative impact on GDP is expected to massively outweigh the benefits from mild fiscal support and low crude oil prices, especially in the April-June quarter. Consequently, we expect the current quarter’s GDP to shrink 25 per cent on-year,” it said.

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Bharti Telecom sells 2.75% Airtel stake, raises Rs 8,433 cr

Bharti Group and Singtel, as Bharti Airtel’s largest shareholders, remain committed to the business and long-term prospects of Bharti Airtel, it said.

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New Delhi, May 26 : Bharti Telecom has sold 2.75 per cent stake in Bharti Airtel to institutional investors through an accelerated book building process in the secondary market, raising Rs 8,433 crore.

The allocation was done to over 50 accounts with the top 10 getting two-third of it, Bharti Telecom said in a statement, here on Tuesday.

The sale proceeds would be used to repay promoter holding company’s debt, it said.

Bharti Group and Singtel, as Bharti Airtel’s largest shareholders, remain committed to the business and long-term prospects of Bharti Airtel, it said.

“The strong and wide response received from a diverse mix of investors across geographies, even during challenging global macro-economic conditions, shows the competitive strength and the long-term prospects of Bharti Airtel,” said Harjeet Kohli, Group Director, Bharti Enterprises.

“On the back of such a strong demand from international and domestic investors, the amount raised was increased to $1.15 billion,” he said.

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