India’s government on Friday slashed corporate taxes in a surprise $20.5 billion break aimed at reviving private investment, seeking to lift growth from a six-year low that has sapped jobs and fuelled discontent in the countryside.
Finance Minister Nirmala Sitharaman told a news conference that the effective corporate tax rate will be lowered to around 25 per cent from 30 per cent, which she said would be on par with Asian peers, an announcement that triggered a more-than-3.0 per cent jump in Indian shares.
“With effect from financial year 2019-20 ... any domestic company has an option to pay income tax at the rate of 22%, subject to condition that they will not avail any exemption,” the minister said.
The effective tax rate for such companies will be around 25 per cent, inclusive of surcharges, she said.
The total taxation revenue loss due to the measure would be 1.45 trillion Indian rupees ($20.5 billion), Sitharaman said, raising concerns that the government may not be able to meet its fiscal deficit target of 3.3 per cent for 2019-20 at a time when tax revenue collections are already weak.
That concern was felt on bond markets, which saw yields rise to a near three-month high on speculation that the government may have to borrow more to meet its expenditure needs for the year.
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