Finance Minister Arun Jaitley in his fifth and last full-fledged Budget ahead of the general elections next year left India Inc. wanting more as the effective corporate tax rate has gone up by 35 basis points. This stems from an increase in cess from 3% to 4% proposed by the finance minister to fund social development projects.
Hopes had initially soared when the Minister said corporate tax for firms with annual revenues of up to ₹250 crore, would see effective tax rate go down to 25%.
Confirming the development, L&T Group CFO R. Shankar Raman told The Hindu , “Forget about corporate tax reduction, I am disappointed with the fact that corporate tax will actually go up by 35 basis points due to imposition of cess. Exemption was removed from everyone so it was anticipated that corporate tax cut will be across the board but it was done for smaller firms. The government wants the private companies to invest. It’s the big companies who invest so tax reduction for smaller firms may not aid to the revival the investment cycle.”
Abhishek Goenka, partner & leader, Corporate & International Tax, PwC India said he was disappointed with zero across-the-board-reduction in corporate tax rates and said he believed that “this kind of patch-work is unhelpful.”
Siddharth Sood, co-founder of Wildcraft said he felt that the corporate rates for larger companies, that have a turnover of more than ₹250 crore, should have been rationalised.
Micro, small and medium enterprises (MSME) firms with a turnover up to ₹250 crore will have reason to rejoice as the government lowered corporate tax on such firms to 25% from 30%.
Listing out positives for the MSME sector, Sarosh Amaria, chief operating officer — Commercial Finance, Tata Capital said, “The budget has big positives for the MSME sector, with a reduced tax rate of 25% for companies with a turnover of up to ₹250 crore and the introduction of a capital subsidy and credit support fund of ₹37 billion. “Further, the focus on online loan sanctions to MSMEs will ease availability of funds for this sector. At the other end of the corporate spectrum, timely follow up announcements from regulators to allow investments in rated bonds would help deepen the bond markets for mid and large companies,” Mr. Amaria added.
‘Lower rate for all firms’
Rahul Garg, Senior Partner — Tax & Regulatory, PwC India, said he believed that reduction for smaller companies was welcome as it left more money in hands of small companies. “The rate reduction should apply to all corporate and non corporate businesses,” said Mr. Garg.
Aniketh Jain, CEO & Co-Founder of Solutions Infini Pvt. Ltd. said that the government’s move to reduce tax for MSMEs will create a balance in the economy by disseminating the disparities between start-ups and large-scale enterprises. “Start-ups can invest the same in other useful interventions,” said Mr. Jain.
Echoing similar feelings, Aashish Kasad, partner and consumer products and retail sector tax leader, EY India, said the reduction should nudge smaller organisations into ploughing back profits to grow the business further.
The ‘Big Boys of India Inc’. will now have to bear a higher tax burden and will have to wait for another year hoping for torporate taxes to come down, according to Vipul Jhaveri, managing partner – tax, Deloitte India.
“The FM’s promise of reducing corporate tax rate to 25% for companies remains limited to the MSMEs leaving the large tax payers to wait for another year. However, 99% of MSME’s with turnover of upto ₹250 crore would benefit from the rate reduction. Unfortunately, large corporates will now carry a slightly higher tax burden from an increase in cess of 1 percentage point. Rationalisation of long-term capital gains taxation may be inopportune in terms of timing as their ability to raise funds through IPOs and FPOs may be impacted due to market sentiment changing,” said Mr. Jhaveri.
Uptick in rural demand
Although the corporate sector is a trifle disappointed at its expectations on investment incentives being belied, it sees an uptick in demand coming through the various positive measures announced for the rural sector.
“There may be a small lag but the various measures announced by the Finance Minister for boosting farmer’s income may eventually translate into “an uptick in rural demand”, which augurs well for the corporate sector although there has been no announcement that would directly benefit large corporates”, said Dipankar Chatterji senor partner, L.B Jha & Co and past chairman, CII Eastern region.
Abhijit Bandypadhyay, chairman, CII Eastern region Economic Affairs & Taxation Sub Committee and partner, Deloitte Haskins & Sells, said the Finance Minister had kept his promise on phased reduction of corporate taxes over five years.
While he had he had reduced tax rates for MSMEs with a turnover of Rs 50 crores last year, he has expanded the bracket to include MSME with a turnover upto RS 250 crores, enabling them to come with the 25 % tax bracket.
Rana Kapoor, MD & CEO, YES BANK believes that the Union Budget FY19 is a truly landmark budget for MSMEs, Startups and the Fintech ecosystem In India. The proposal of creating a unique ID for MSMEs will be a significant step towards formalizing the sector.This is also the first budget to recognize the transformational impact of the fintech sector, especially in key areas like MSME financing. Supported by an enabling ecosystem, India has the potential of becoming a global Fintech Hub,” said Mr. Kapoor.
“The selective reduction in the rate of corporate tax to 25% for companies with turnover of up to ₹250 crore, though welcome, could perhaps have been extended to the entire corporate sector,” said Baba Kalyani, CMD, Bharat Forge. Faizal E. Kottikollon, founder and chairman of the UAE-based conglomerate, KEF Holdings, said, “I am especially pleased to see the reduction in corporate tax to 25%. This is a significant move, and one that enables robust growth through private sector investment, which has been sluggish.”
