Parliament okays corporate tax cut; Sitharaman says software developers, miners not eligible for lower rates
The government had brought ordinance to slash corporate tax rate and thereafter brought a bill in this session. The Taxation Laws (Amendment) Bill, 2019 was already passed by the Lok Sabha.
NEW DELHI: Parliament on Thursday approved the Taxation Laws (Amendment) Bill, 2019 that replaces an ordinance promulgated to cut the base corporate tax rate, with Finance Minister Nirmala Sitharaman stating that mining companies, software developers and book printers will not be eligible for the lower 15 per cent rate available for new manufacturing companies.
Lok Sabha had earlier this week passed the bill and the Upper House returned it on Thursday without making any changes.
Replying to a debate on the legislation, Sitharaman said a negative list of activities that do not constitute manufacturing has been created and will not be eligible for the lower 15 per cent tax rate for manufacturing firms that are set up after October 1 and that begin operations by 2023.
The negative list includes the development of computer software in any form or in any media, mining, conversion of marble blocks or similar items into slabs, bottling of gas into cylinder, the printing of books or production of a cinematograph film.
Sitharaman had on September 20 announced the lowering of the base corporate tax rate to 22 per cent from 30 per cent for companies that do not seek exemptions, and reduced the rate for new manufacturing companies to 15 per cent from 25 per cent.
Including surcharges and cesses (levies to raise funds for specific purposes), the effective corporate tax rate will drop by nearly 10 percentage points to 25.2 per cent for corporates in general and 17.01 per cent for new manufacturing companies.
The corporate tax cut followed other measures by the government to prop up slowing GDP growth adopted since the May general elections.
These include efforts to reduce red tape and boost foreign direct investment (FDI), and plans to consolidate the state-owned banks.
The finance minister said the reduction in corporate tax was done to make India an attractive destination for firms looking to invest outside of the US and China following their trade tensions.
A lower rate of 15 per cent was offered for new manufacturing units to draw new investment, thus reviving economic activity and creating jobs, she said.
Sitharaman also promised to continue the rollout of reforms to boost the economy.
GDP growth rate in July-September slowed to a six-year low of 4.5 per cent on a slump in manufacturing and a drop in consumer demand.
On demands by MPs for reducing personal income tax to provide more money in the hands of people, thereby boosting consumption, she listed out the rebates and reliefs offered during the previous five years of the Modi government but did not commit to further cuts.
She also countered the narrative of a slowdown in private consumption, saying the share of consumption in the gross domestic product (GDP) rose from 56.2 per cent during 2009-2014 to 59 per cent in the first five years of the Modi government.
In the first half of 2019-20 fiscal, it was 58.5 per cent, still higher than during UPA-II, she said.
Justifying rollback of higher surcharge on foreign portfolio investors that was introduced in her maiden Budget, she said fringe benefits tax and banking transaction tax was introduced in 2005 but rolled back in 2009 and 2008 respectively.
During the debate, Congress member Jairam Ramesh attacked the corporate tax reduction as a curtain-raiser to Prime Minister Narendra Modi's 'Howdy Modi' event in Houston.
"The changes were welcomed. But the timing was quite extraordinary. Two days later there was a Howdy Modi in Houston. Prime Minister always likes to go on a foreign trip accompanied by major policy announcements and I think what happened on September 20, 2019, was the curtain-raiser for the event to follow the event in Houston," he said.
While BJP members including GVL Narasimha Rao said the bill would help the Indian economy and boost the growth rate, Sukhendu Sekhar Ray of the Trinamool Congress doubted it saying rural spending has slid after four decades and there is a decline in consumer expenditure.
KK Ragesh of CPI-M termed the cut as a "scandal" while Samajwadi Party's Ravi Prakash Verma said that the economy was in "panic stage".
Responding to the members, Sitharaman said the Prime Minister has taken one initiative after another seeing the developing situation and the government did not wait for the next Budget to announce measures including tax cuts.
She said many MNCs want to shift their base from China in view of the Sino-US trade war and that is the subtext of the government's decision.
Stating that the government policy was to phase out exemptions and reduce tax rates, she said the corporate tax cut would also benefit small and medium enterprises.
Responding to the members' criticism on rollback of Budget proposals, the finance minister said "rollbacks are not wrong per se" and cited the same done during the UPA regime.
Defending taking the ordinance route and not waiting for two months for the next Parliament session for making changes, she said the previous Congress-led UPA had promulgated 61 ordinances in its 10-year rule, including 16 on finance-related matters.
She also attacked the UPA for leaving unpaid bills for the new government in 2014, including Rs 1.4 lakh crore in dues to oil firms.
Sitharaman also said she has asked income tax officials not to harass taxpayers and the department has introduced faceless assessment.
However, she said the government would not spare tax evaders and defaulters.