India is cutting corporate tax rates for domestic companies and is providing new tax concessions for greenfield manufacturing investment, as it seeks to bolster its faltering economy after growth tumbled to a six-year low.
Nirmala Sitharaman, finance minister, announced on Friday that the government has reduced the corporate tax rate to 22 percent for domestic companies, down from the existing tax rate of 30 percent.
India’s benchmark S&P Sensex stock index jumped 4.3 per cent following the tax cut, which the business community has long demanded as a way of increasing competitiveness. That is the market’s biggest one-day gain in a decade.
Ms Sitharaman also said that new manufacturing companies that incorporate after October 1 will be eligible for a corporate tax rate of just 15 percent, down from the previous rate of 25 percent, provided they begin production by the end of March 2023.
The finance minister added that the moves bring India’s corporate tax regime to “almost at par with many of the Asian and Southeast Asian countries in terms of the corporate tax rates”.
Ms Sitharaman estimated that New Delhi would forgo an estimated $20bn in revenues each year but that the tax reduction would encourage economic “buoyancy” and contribute to new revenues by enlarging the tax base.
“It means a lot more investment, a lot more employment, as a result of which economy will grow and give us more revenue,” she said.
India’s economy has slowed for five consecutive quarters, with growth falling to a six-year low of 5 percent year on year from the April to June quarter. Economists say that the economy has been hit by both a sharp-slowdown of private consumption, and persistently muted private investment.