India’s government escalated efforts to repair economic growth with a surprise $20 billion tax cut, taking the rate for companies to one of the lowest in Asia.
Domestic companies will pay 22% tax on their income from April 1, 2019, versus 30% previously, Finance Minister Nirmala Sitharaman said Friday. The effective rate, including all additional levies, will be 25.2% and applicable on companies that aren’t availing any incentives or exemptions.
India’s key S&P BSE Sensex rose 5.3% in Mumbai, the biggest gain in a decade, and the rupee rallied after the announcement. Sovereign bonds slumped as fiscal concerns came sharply back to the fore.
New companies formed from Oct. 1 will attract 15% tax and an effective rate of 17.01%, Sitharaman said. That brings it to the same level as in Singapore.
India joins Indonesia in cutting tax on corporates as Asian economies compete with each other to attract companies looking for alternate manufacturing locations to escape disruptions from the U.S.-China trade war. The 1.45 trillion-rupee ($20.5 billion) revenue loss from the move will test Sitharaman’s goal of narrowing the fiscal gap to 3.3% of gross domestic product this year despite a more than $24 billion windfall from the Reserve Bank of India.
“We are conscious of the impact all this will have on our fiscal deficit,” she said, without elaborating. Click to read more.
India’s economic growth may be slowing down, but the country could stage a turnaround to expand by more than 7% next year, according to the latest forecasts by the Asian Development Bank.
In the April-to-June quarter, Asia’s third-largest economy grew 5% year-over-year- a six year low pace. That prompted several economists to warn that the country’s growth rate could fall below 6% this year.
ADB also downgraded its growth projections for India. In a report released Wednesday, the Manila-based development bank said India is expected to grow by 6.5% in the current fiscal year, down from its previous forecast of 7.2%. For the next fiscal year, that growth rate could rebound to 7.2%, slightly lower than the earlier forecast of 7.3%, said ADB.
“This year’s downward revision seems to be mainly driven by overall broader slowing down of domestic consumption, investments, manufacturing production and service sector production,” Yasuyuki Sawada, ADB’s chief economist, told CNBC’s “Street Signs Asia.” Click to read more.