The Rajya Sabha on Thursday cleared a Bill amending the taxation law to enable lowering of the corporate tax rate.
The Taxation Laws (Amendment) Bill, 2019 was cleared by voice vote in the Rajya Sabha, for returning to the Lower House. The amendment replaces an ordinance that reduced the tax rate for domestic companies from 30% and 25% (for those with annual turnover of over ₹400 crore) to 22% if they don’t claim certain exemptions under the Income Tax Act. The rate for new domestic manufacturing companies set up after October 1 was lowered to 15%.
Responding to a comment from Congress member Jairam Ramesh earlier during the discussion that the reduction in tax rates “may be good PR,” but won’t address the “structural decline” in the economy, Finance Minister Nirmala Sitharaman said: “Cutting down the corporate tax is not just good for headlines; it is not just good PR; it is not just good atmospherics, but it is a good reform.”
Task force report
She said the government under Prime Minister Narendra Modi would continue rolling out reforms as it had done in its first term. She said the task force on direct taxation code had submitted its report and it was “under examination of the Ministry.”
On the issue of ordinance, which was questioned by MPs, including CPI(M) member K.K. Ragesh, Ms. Sitharaman said ordinances on financial matters had been brought by the UPA government in the past. She said the government decided to act looking at global factors, including the trade war between the United States and China, which was leading to companies leaving China and other Asian countries offering tax concessions.
‘Economy in crisis’
Stating that he supported the Bill, Mr. Ramesh said the Indian economy was in a crisis — “the first where macro economic variables look very healthy.” He said the current situation of six consecutive quarters of GDP growth slowing down was even though there was no problem with the ‘5Fs’ — food, fuel, foreign exchange, fiscal deficit and financial crisis.
“But yet our situation is one of continuous economic deceleration. I come back to the point — sentiment. Sentiment is subdued. Sentiment is negative. Sentiment is not positive. This corporate tax reduction helped markets balloon for 24 hours or 48 hours, but did nothing to address the long-term issues of sentiment, long-term issues of consumption and long-term issues of investment sluggishness,” he said.
Sukhendu Sekhar Roy of the Trinamool Congress said the government would forgo ₹1.45 lakh crore in revenue with the reduction in corporate tax rate, leading to an increase in the fiscal deficit. He said the ordinance appeared to be a panic reaction.
‘Fear in market’
Ravi Prakash Verma of the Samajwadi Party added that the expectation of the government that the companies benefiting from the tax cut would invest more might not come true. He added to Mr. Ramesh’s ‘5F theory’, saying there was “one more F — fear.” He said there was fear in the market, leading to companies moving abroad and that this was something worth paying attention to.
Amar Patnaik of the Biju Janata Dal said mining should be included in the list of manufacturing companies that will get the lower 15% tax rate.