TAXATION LAWS (AMENDMENT) ACT, 2019: ‘THE BENEFIT THAT INDIA COULD REAP’

The authors of this blog are Saharshrarchi Uma Pandey and Ritansha Singhal , Second Year Student of B.A.LL.B (Hons) at Maharashtra National Law University, Nagpur.

                               

To revitalize the corporate foyer and energize the animal spirits in the economy, an Amendment to the Income Tax Act of 1961 and Finance (No.2) Act, 2019, has been undertaken’

CORPORATE TAX CUT

Aiming to lift business sentiment and spur investments, the government has slashed the rates of corporate tax, wherein, a domestic company can pay income tax at 22%; the previous being of 30%, if they don't seek an exemption or incentives. Effective Tax Rate would be 25.17% inclusive of all surcharges and cess for such domestic companies, earlier; the same being 35% Such companies are also not required to pay Minimum Alternative Tax. [i]

For new manufacturing companies that start production before March 2023 and incorporated on or after 1st October 2019, corporate tax rate brought down to 15% from 25%, with effective tax rate is around 17%;[ii]

Additionally, MAT for companies that want to use tax exemptions cut to 15% from 18.5%. The companies that are already living under tax holidays can enjoy the same cut incorporate tax after their time period has come to an end. [iii]

Revenue foregone for reduction on corporate tax and other measures pegged at Rs 1.45 lakh crore per year.

It is highly crucial to state; that, through this measure, India has become the only country in the South-East Asia and in fact the Asian continent to strike its corporate tax, firstly, and secondly, sliced it to a state to be the lowest in the specified region, thus, having magnified the chances of private players to come in at a rampant rate and spur the wheels of the recessionary economy whose GDP Growth has been declining significantly, in the backdrop of its government’s continuous ‘denial’.

EFFECT ON INCOME, OUTPUT AND EMPLOYMENT

This step by the government is a breakthrough, bold and a sensitive measure. In many of the economically active set-ups, there were already reduced levels of corporate tax that ensured higher profits for the firms and hence, higher investments came in that not only provided employment and impetus to the economy but even led to the GDP development for which all the economies are crying out for loud. But with this reduction in the corporate tax in India, it will not only attract foreign investors to set up their businesses and expand their economic activities of production, manufacturing, distribution and sale but will even facilitate the firms that are already established to go beyond the horizon, enjoy higher levels of revenue receipt and ultimately, a ‘good-sentiment’ is being forged. Because of the aforesaid, more manufacturing units will be set up, higher expenditure would be incurred, employment would be given, the incomes of the people would expand and so will their dispensable income with higher expenditure capabilities, thus, ameliorating the situation of deficient demand and would definitely even help in averting poverty and hunger to a particular extent, in an economy where employment crisis has hit an all-time high in 45 years. [iv]

Moreover, the natural resources would be efficiently and effectively utilized by the coming in of enhanced technology from all corners of the world that would ultimately reduce the costs and would increase the benefits of scale and supply of the goods in the economy. The export capabilities through the new established firms would even increase and expand that would reduce the trade deficit and would start building the foreign reserves and liquidation in the economy. Additionally, as multiple competitors come in the market, the supply of the commodities increase and the prices would begin to stabilize as less and less prices are offered because the producers want to have their increasingly produced goods sold; which would be beneficial for the consumers. This would lead to a higher per capita income in due course of time and would lead to the economic development of our nation with a higher GDP growth.

US-CHINA TRADE WAR: INTERNATIONAL PERCEPTIVE

 In association with all these relatives, India seems to be taking advantage of the US-China trade war as well. United States imposed trade restrictions and sanctions on Iran because of the US-Iran Nuclear Deal which was not being kept to its agreed norms. As a result of this, India stopped imports from Iran of oil and natural gas, which hindered its economy by tough statistics. And recently, Indian PM Modi visited Houston and convened a meeting with the major oil and natural gas companies and their CEO’s as Texas in the US is the oil and natural gas prime supplier,[v] thus, developing major bilateral relationships in trade and imports of oil and natural gas, after which Texas agreed to provide oil and natural gas at about 13% concessional rates to India[vi] but detrimentally hampering its links with Iran as it ultimately stopped imports from Iran so as to keep intact its relationship with the US. To corroborate with this, the agreement with Petronet Ltd of USA signed an agreement of about $5 Billion for natural gas imports, forming a perfect example. [vii] But recently, China promised to provide a $400 billion line of credit amount to Iran to facilitate its economy,[viii] its capabilities in extracting its natural resources and ameliorating its infrastructure amenities as well. Thus, China created a modern-day colony by doing so and Iran agreed to it for the same because of its frivolous conditions.[ix] Thus, China and Iran could be regarded as that one arena and US, but on the other side. US announced that all the United States international Cooperation’s that are operating in China would not be provided any concessions and exemptions that they have been availing till now. Hence the US Multi-National Corporations are looking for another region in South- Asia to shift its business operations to and as India has recently reduced its corporate tax to the lowest in South and South- East Asia, hence we can expect some heavy Corporations like Skechers (USA) from China, to shift its operations, which actually planned to shift to Vietnam might actually come to India as well.

Thus, the corporate tax cut has been the biggest; both unexpected but beneficial measure which will awaken the ‘animal spirits’ for the Indian lands and can be a powerful tool for accelerating growth, provided resources are raised efficiently without causing distortions.

---

[1] Second Year Student of B.ALL.B (Hons) at Maharashtra National Law University, Nagpur, Email-sahapa71@gmail.com, Mob.No.+91-6264721254.

[2] Second Year Student of B.ALL.B (Hons) at Maharashtra National Law University, Nagpur, Email-   ritansha1001@gmail.com, Mob.No.+91-8964961031.

---

[i] The Taxation Laws (Amendment) Bill, 2019, No. 362 of 2019, The Gazette of India, http://164.100.47.4/BillsTexts/LSBillTexts/Asintroduced/362_2019_LS_Eng.pdf, 5 Dec 2019

[ii] DK Rangarajan & D.K. Srivastava, “The macro arithmetic of corporate tax cuts”, HBL

https://www.thehindubusinessline.com/opinion/the-macro-arithmetic-of-corporate-tax-cuts/article29586882.ece (visited on 4 Dec 2019, 8:23 PM)

[iii] Sachin Dave, “Corporate tax cut: Issue of carrying forward losses vexes companies in red”, ET
//economictimes.indiatimes.com/articleshow/71321427.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst (visited on 4 Dec 2019, 10:33 PM)

[iv] Somesh Jha, “Job crisis for real as unemployment hits 6.1%, highest in 45 years”, Business Standard,

https://www.business-standard.com/article/economy-policy/job-crisis-for-real-as-unemployment-hits-6-1-highest-in-45-years-119053101462_1.html (5Jan 2020)

[v] Ravi Agrawal & Kathryn Salam, “Texas Gets Ready to Say ‘Howdy, Modi!’”, FP

https://foreignpolicy.com/2019/09/17/texas-gets-ready-to-say-howdy-modi-speech-trump-unga-india-us-relations-pakistan-blasphemy-riots-oil-prices/ (Visited on 4 Dec 2019, 11:55 PM)

[vi] Palak Sharma, “Howdy LNG: Modi aims for energy in Houston”, AC

Atlantic council.org/blogs/new-Atlanticist/howdy-lng-modi-aims-for-energy-in-houston/(Visited on 5 Dec 2019, 7:03 AM)

[vii] T.K. Arun, “Modi and Trump score from Howdy Modi, but what’s in it for India” ET
//economictimes.indiatimes.com/articleshow/71256156.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst(Visited on 4Dec 2019, 11:22 PM)

[viii] Ariel Cohen, “China's Giant $400 Billion Iran Investment Complicates U.S. Options”, Forbes

https://www.forbes.com/sites/arielcohen/2019/09/19/chinas-giant-400-billion-iran-investment-snubs-trump/#5a8104f884d1 (Visited on 5 Dec 2019, 11:12 AM)

[ix] Muharram, “China to invest $400 billion in Iran”, Crescent International

https://crescent.icit-digital.org/articles/china-to-invest-400-billion-in-iran (Visited on 5 Dec 2019, 13:57 PM)