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Reduction in corporate tax rates expected to give ailing auto sector shot in the arm

September 20, 2019, 07:05 PM IST by Venkat Desirazu
Reduction in corporate tax rates expected to give ailing auto sector shot in the arm

Finance Minister Nirmala Sitharaman, today, announced a reduction in corporate tax rates. The announcement sees the rate drop from 30 per cent to 22 per cent subject to the condition that they do not avail any exemption/incentive. The effective tax rate for these companies shall be 25.17 per cent inclusive of surcharge and cess. Also, such companies shall not be required to pay minimum alternate tax.

Further, the centre has also said that any new domestic company incorporated on or after 1 October making fresh investment in manufacturing, get an option to pay income-tax at the rate of 15 per cent. This benefit is available to companies which do not avail any exemption/incentive and commence their production on or before 31 March, 2023. The effective tax rate for these companies shall be 17.01 per cent inclusive of surcharge and cess.  Also, such companies shall not be required to pay Minimum Alternate Tax.

Both these moves are expected to benefit the auto sector which is currently struggling with negative growth. The move is expected to enable the automakers re-invest the saved amounts by putting into new products, marketing initiatives as well as expanding production facilities and providing benefits to customers.

Industry reactions
Rajan Wadhera- President, SIAM
These are indeed landmark announcements and would certainly help in reviving growth in the Indian Economy. He truly appreciated the leadership of Hon’ble Finance Minister in making India globally competitive in terms of taxation rates. These set of major tax reforms are a clear indicator of the Government of India’s commitment to improving Business environment to give a definite boost to economic growth.

Martin Schwenk, Managing Director and CEO, Mercedes-Benz India
"Reduction in corporate tax to 22 per cent is a shot in the arm as it is directly correlated to economic growth. Reduction of corporate tax has been on the agenda and it will also boost ‘Make in India initiatives. It will promote investment, help sustain profitability during challenging times and should also improve buying sentiments, thus helping the auto sector in long term.”

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