BL Research Bureau

With the Finance Minister Nirmala Sitharaman announcing a sharp cut in tax rates for corporates, India is now among the countries that have a low corporate tax rate. Though the incentive is only for companies that do not claim any exemption, it is a big move that brings India on par with peers in Asia and across the globe.

India’s statutory rate for corporate tax is 22 per cent now, down from 30 per cent.

For the current year, KPMG data shows that the statutory tax rate in Myanmar is 25 per cent, in Malaysia, it is 24 per cent, in Indonesia and Korea 25 per cent and Sri Lanka 28 per cent. Even Chinese companies cough up more – they pay a tax of 25 per cent and Brazil 34 per cent.

The global average corporate tax rate is 23.79 now, and the Asian average is 21.09 per cent.

Read also - Corporate tax rate cut: Diwali bonanza to corporates

Since 2003, while globally countries have witnessed sharp cuts in corporate taxes, in India, it had stayed around 30 per cent.

The Finance Minister's corporate tax cut will aid Indian companies to compete better globally.

When Arun Jaitley announced the move to rationalise taxes in 2015-16, the intention was to bring it down the corporate tax rate to 25 per cent from 30 per cent. Finance Minister Nirmala Sitharaman's move to take it lower to 22 per cent, is a big positive.

Manufacturing companies incorporated after 1 October 2019, will have the benefit of an even lower rate of 15 per cent (effective tax rate of 17.01 per cent). Also, companies not availing exemptions and tax incentives will not be required to pay minimum alternate tax (MAT).

Revenue foregone

The current move to cut taxes are though going to make a hole in the government’s tax kitty. Last year, as per the Budget estimates, the revenue foregone by the Centre on various tax incentives were ₹1.08 lakh crore. Now, with tax cuts, there will be an additional revenue loss of ₹1.45 lakh crore.