The finance ministry finally decided to cut the corporate tax. The government has slashed basic corporate tax rates to 22% from 30% while for new manufacturing companies it has been cut down to 15% from 25%.
About the Corporate Tax and its importance for government
- The corporate tax is direct tax and is imposed on the profit that corporate enterprise makes from their business.
- The tax is imposed at a specific rate as per the provision of the Income Tax Act,1961.
- Corporate tax is the biggest source of revenue for the government.
- According to the budget document of 2019, corporate tax contributes 21 paise for every 1 rupee that the government earns in the form of revenue.
- Due to this step of the government, the revenue collected by the government will be decreased by 1,45,000 crore rupees.
Understanding cut in the Corporate tax
- The government has slashed basic corporate tax rates to 22% from 30 % for domestic companies.
- For new manufacturing companies that start production before March 2023 and incorporated on or after 1st October 2019, corporate tax has been cut down to 15% from 25%.
- Note that even after this cut in the corporate tax, the effective tax rate (including some surcharge and cess) for old domestic companies will be 25.17 %. All these companies(old companies only) which avoid tax exemptions and incentives will not need to pay Minimum Alternative Tax.
- For new manufacturing companies, the effective tax rate will be 17% (including some surcharge and cess).
Why the government has taken this step?
- There is a continuous slowdown in the Indian market due to a drop in customer demand and drop in the private investment. This step of government will bring private investors into the market.
- The main purpose of the government is to take advantage of the USA-China trade war. The trade war between these countries is going worse day by day. Even President Trump has stated that American companies in China should shift their manufacturing plant.
- Initially, it was expected that India will able to take advantage of the USA-China trade war. But due to high corporate tax in India, most of the companies are shifting to Singapore, South-Korea, etc as the corporate tax in their countries is lower than India. But reducing the corporate tax we are as equal are these countries.
- This step of government can lead to major investments in India and lakhs of people can be employed.
- The startups and MSMEs(Micro, Small and Medium Enterprises) would able to add value in the Indian economy due to negligible Minimum Alternative Tax. â€‹â€‹â€‹â€‹
Hope it helps.
If you find this article useful, do UPVOTE and share it with your friends and comment down the topic which you are aiming for.