NEW DELHI (BLOOMBERG) - India cut tax on local businesses to one of the lowest rates in Asia, while providing a more than US$20 billion boost to revive economic growth from a six-year low.
Tax on domestic companies will be lowered to 22 per cent from a base rate of 30 per cent currently, Finance Minister Nirmala Sitharaman said on Friday (Sept 20). The effective new rate will be 25.2 per cent including all additional levies and is applicable only for companies.
The new tax structure is effective from April 1, 2019. New companies formed from Oct 1 will attract a base tax rate of 15 per cent, she said.
The reduction in corporate tax rates follows a series of steps to boost demand and investments after growth slowed to 5 per cent in the quarter ended June. The move puts India's tax rate on a par with Asian peers and will boost efforts to attract investments as companies look for alternative destinations to sidestep supply chain disruptions from the US-China trade war.
"In order to promote growth and investment, a new provision has been inserted in the Income Tax Act with effect from fiscal year 2019-20," Ms Sitharaman said, adding that the latest measure will cost the government 1.45 trillion rupees (S$28.1 billion) in revenue.
The government had estimated tax revenue of 16.5 trillion rupees in the year to March. "We are conscious of the impact all this will have on our fiscal deficit," said Ms Sitharaman, who's targeted to narrow budget gap to 3.3 per cent of gross domestic product this year.
Prime Minister Narendra Modi has been under pressure from industry groups and political opponents to use the fiscal space afforded to him last month by a more than US$24 billion windfall from the Reserve Bank of India.
RBI Governor Shaktikanta Das welcomed the government announcement, calling it a "bold move'.'