India slashed corporate taxes on Friday, giving a surprise US$20.5 billion break aimed at reviving private investment and lifting growth from a six-year low that has caused job losses and fueled discontent in the countryside.
Finance Minister Nirmala Sitharaman told reporters the effective corporate tax rate would be lowered to around 25 percent from 30 percent, which she said would put it on a par with Asian peers.
Starting from the current fiscal year, any domestic company has the “option to pay income tax at the rate of 22 percent” as long they do not seek any special tax incentives, the minister said in the western city of Panaji where officials are also considering lowering sales tax on 20-25 products.
The effective corporate tax rate for companies will be around 25 percent, inclusive of surcharges, she said.
She lowered effective corporate tax further for domestic firms incorporated on or after Oct. 1 to 17 percent, with the condition that they begin production by March 2023.
Foreign firms that have Indian subsidiaries or joint ventures partnerships with Indian companies can also get the lowered corporate tax rates, Sitharaman said.
Prime Minister Narendra Modi, under pressure to make good on a promise to deliver growth and tens of thousands of jobs, said the new rates would spur investment including his signature program to boost domestic manufacturing.
“The step to cut corporate tax is historic. It will give a great stimulus to #MakeInIndia, attract private investment from across the globe, improve competitiveness of our private sector, create more jobs and result in a win-win for 1.30 billion Indians,” he said on Twitter.
Reserve Bank of India Governor Shaktikanta Das said the moves augur “extremely well” for the economy.
“These are definitely very bold and welcome measures,” he said at a forum. “These tax rates take us closer to the tax rates which prevail in this part of the world.”
Indian shares surged more than 6% and were set for their best day in more than a decade after the government announced the tax cuts. Reuters
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