The Department of Commerce, in a proposal to the finance ministry, has sought an extension of the lower corporation tax offer of 15 per cent by two years, which will give companies time till March 31, 2025, to start production, as against the March 31, 2023, cut-off date as of now.
The move is aimed at allowing companies that have a long gestation period to avail of the offer, besides aligning it with the vision of achieving a $5-trillion economy by 2024-25.
“There are sectors that take longer to start production because you have to work out the entire sourcing chain. Extending it to 2025 will give them enough time to sort out those things,” said a government official.
These companies need not pay any minimum alternate tax (MAT). The rate was cut to 25 per cent for existing companies that do not avail of any exemption. Besides, minimum alternate tax (MAT) was cut to 15 per cent from the current 18.5 per cent.
Invest India is compiling a list of companies that set up shop after April and missed the concessional rate by a few days or months. “There are a lot of foreign players that have expressed disappointment at missing the lower corporation tax rate of around 17 per cent because they set up companies in September or August, which means they missed the bus by just a few days or months,” said an official. He said a proposal was being prepared to ask the finance ministry to extend the lower tax rate to these companies as well.
“It is up to the finance ministry whether they allow the concessional rate for companies from April 2019 or August 2019, but it is a genuine concern,” he said.
Rakesh Nangia, chairman, Nangia Anderson Consulting, said the government should take a fresh look at the industry suggestion that the new rate should be applicable to manufacturing companies set up on or after April 1. He, however, added that although the corporation tax rate reduction had been a great initiative, it would not help the economy to come out of the current downturn.
“The economy needs bold steps to ensure the demand picks up and the investment cycle kick-starts,” he said.
The Ministry of Statistics and Programme Implementation has projected GDP will expand at an 11-year low of 5 per cent in 2019-20, with manufacturing growth expected to fall to a 15-year low of 2 per cent from 6.2 per cent in the year-ago period.