NEW DELHI: India expects the huge slash in the tax structure for new companies to 15% to act as a lodestone for biggies such as Apple to relocate to India from China with which the US is locked in a trade war.
“The top consideration of (low corporate) tax is now being fulfilled by us. No country (in the region) is offering 15% tax without surcharge for a new unit being set up … so the logic (of relocation) is in our favour,” said Finance Minister Nirmala Sitharaman at a select briefing here on Sunday.
The government had announced slashing of corporate taxes to 22% last Friday. The new rates are in line with many global trade partners, including the US, which had cut rates to 21% two years ago.
Sitharaman had also announced that new units would be taxed at an even lower 15%. And new units of even those established by existing players would qualify for lower taxes.
“For example, Apple and its eco-system can now move … if they find it more attractive to relocate to India,” said Sitharaman.
Apple’s biggest mobile assembler Foxconn has already moved to India and is believed to be planning to expand its facilities here. And many of its suppliers and sub-suppliers are thinking likewise.
Besides Apple, a large number of other American companies are considering relocating out of China due to high tariffs imposed by US President Donald Trump on imports from that country. Other factors such as rising labour cost and arbitrary changes in law have also disturbed European and Japanese firms, many of whom are in the process of shifting base, mostly to neighbouring Vietnam and Asean countries.
“For competing with them (Asean nations) you have to bring down your tax rate … the logic is all US companies relocating out of China will not go back to the US, some will relocate to other countries in the region as their market is here,” the minister said.
She added that logistics and factors such as stability, rule of law, comfort levels about language etc., besides taxes would weigh in on investment relocation decisions.
Speaking of the impact of the tax cuts, which involve a giveaway of Rs 1.45 lakh crore, Sitharaman described it as a calculated risk and said the government was not planning to cut spending but would review the fiscal deficit target closer to the 2020-21 budget.
The fiscal deficit target of 3.3 per cent of GDP is likely to be breached if the government does not cut spending or finds new ways of raising resources.
Asked about the possibility of a reduction in personal I-T rates, the minister said she “had not applied her mind on the issue”.
A draft direct code was submitted to the government, which will possibly pick some of the recommendations for its next budget.
Explaining the rationale behind the tax cut, Sitharaman said “we felt it necessary to do something on the supply side,” and added that “there was a demand-side” to the tax cut as it would spur investment, dividend distribution and price reductions with the firms taking a decision on which step to take from their savings arising out of the tax cut.