Modi’s first budget 3.0 has hit the country and the world. Seeing this budget, China may spend sleepless nights. Yes, the central government has made a huge cut in corporate tax. This will help foreign companies to invest or rather invest in India. Also, this decision can go a long way in making India the largest factory in the world. In fact, the government has taken this decision to woo foreign companies. So that they leave China and invest more in India. Also, the global supply chain should shift from China to India.
It is expected that this budget can prove to be very helpful in achieving the government’s target of a $5 trillion economy. Also, tax cuts for foreign companies can go a long way in this endeavour. This budget will help India become a global economic player, with an emphasis on attracting FDI. By establishing itself as a global factory or rather a global manufacturing hub, India wants to produce not only for its local markets but also for the world.
This was announced in the budget.
Announcing the budget for this financial year, Sitharaman said that in order to attract foreign capital as per the country’s needs, I propose to reduce corporate tax on foreign companies from 40 per cent to 35 per cent.
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The budget has proposed to reduce the tax rate on income of a foreign company (other than income charged at special rates) from 40 per cent to 35 per cent. Hinduja Group of Companies (India) Chairman Ashok Hinduja said in a press briefing that some changes in taxes have been announced, which need to be studied in detail, while the reduction in taxes on foreign companies is expected to bring in more FDI.
Vineeta Krishnan, executive director, Direct Taxes, Khaitan & Company, said that with the tax cut, the highest tax levied on foreign companies has come down from 43.7 per cent to about 38 per cent. Krishnan said that this tax cut is especially beneficial for foreign companies present in India, such as bank branches and infrastructure companies.
India will become a better option for manufacturers
When the eyes of the entire world are fixed on South Asia, the world’s big companies are busy looking for alternatives to China. In such a situation, India is trying to present itself to the world as an alternative to China. The government aims to attract FDI worth $110 billion annually for the next seven years, compared to an average of over $70 billion in the last five years. The budget seeks to simplify rules and regulations for FDI to attract more foreign funds, prioritize and promote opportunities to use the Indian rupee as a currency for foreign investment.
Initiatives like Make in India, Industrial Corridor Development Programme, PLI, Bharat Semiconductor Mission and National Logistics Policy have significantly contributed to attracting foreign investors. India has gone all out to present its importance as a manufacturing hub to the entire world. This is the reason why many players from the electronics, automotive and engineering sectors have announced investments in India.
Dhaval Selwadia, Partner at NA Shah Associates, said in a press report that the main objective of this step (reducing corporate tax on foreign companies) is to make India a better destination for foreign investors. So that more and more investments come to India and jobs are created. Lower taxes will help India compete with other emerging markets and foster a more business-friendly environment.
From Apple to VinFast arrive in India
India has recently forced many companies, from Apple and Foxconn to Vinfast and Stellantis, to announce their investments in India. On the other hand, they are also trying to court Tesla and other major companies in the world. On the other hand, these companies also know that India is currently the second alternative to China. Where, along with the population, there is also the ability to spend.
Let us try to understand this with an example. Foxconn is doubling down on its investments and business partnerships in India. The company is now looking at expanding its supply chain outside China. For which, the company has leased about 550,000 square feet of warehouse space in Chennai Industrial Park for 10 years earlier this year. It can be said to be one of the largest units in India for manufacturing Apple products.
There must be an alternative to China
Earlier, in the Economic Survey released on July 22, it was also mentioned that India has started preparing itself as an alternative to China. That is why it is inviting global companies to come to India. The ambitious plan outlined by the government to establish India as a global manufacturing hub will create many employment opportunities.
The recent tax cuts for foreign companies are expected to give a further boost to this dream. The tax cut for foreign companies comes after the Reserve Bank of India (RBI) reported in June that net foreign direct investment (FDI) inflows into the Asian nation fell by 62 percent last fiscal year, to the lowest level since 2007.
India’s manufacturing sector is on the growth path and the world is moving fast with the China+1 policy. Economists believe that to take advantage of this and develop India as a global manufacturing hub, the government needs to adopt a broader and more flexible stance on the PLI scheme, lower corporate retrenchments and customs duties.
Did local businesses get any relief?
On the other hand, the budget has left no changes in the corporate tax on public companies and has kept it at just 22 per cent. There has been a continuous demand from businesses for reduction in corporate rates so that investment is encouraged and employment opportunities are created. However, the cut in corporate rates would have hit the country’s exchequer at a time when the government wants to reduce the budget deficit to below 4.5 per cent of GDP by 2025-26.
Ahead of the 2019 Lok Sabha elections, the Modi government had proposed in the interim budget to reduce corporate tax from 30 per cent to 25 per cent for companies with an annual turnover of up to Rs 400 crore.
Corporate tax, which taxes the profits of companies operating within the country, is a major source of revenue and is important in helping India meet its budget deficit targets. This money is also used to execute government schemes ranging from social sector and welfare schemes to infrastructure development.
