Know about Corporate Tax, Understand the present cut in corporate tax and intention of the government behind this step for UPSC CSE/IAS prelims and mains
Category:
Article

Contributed by
Username akashaky
on 21/09/2019

forum Share share

Present Context

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.



Similar Posts

keyboard_arrow_up