The Finance Minister of India, Nirmala Sitharaman has said that there are no plans to revise the fiscal deficit target for the current fiscal at the moment. She also informed that any decision in this regard will be taken before presenting the annual budget next year. Experts, on the other hand, have said that the corporate tax reduction will widen India’s fiscal deficit. The government, on Friday, reduced the corporate tax by nearly 10 % points.
Nirmala Sitharaman, upon asking about fiscal deficit revision said that these are the 'decisions taken near the Budget'. The corporate tax slash has been the biggest reduction in the 28 years. The base tax was reduced from 30% to 22% in the announcement that FM Nirmala Sitharaman made on Friday. The idea behind taking this decision was to boost the economy out of a six-year low growth and a 45-year high unemployment rate by reviving private investments. The slash will result in the subsequent foregone revenue of Rs 1.45 lakh crore annually. The tax for the new manufacturing firms incorporated after October 1, 2019, and starting operations before March 31, 2023, is reduced to 15% from the current 25%.
She also informed that the borrowing target for the second half of the current fiscal will be decided in the next few days. Sitharaman said, "Not touching any of the given targets now. When the meeting for revised estimates takes place, we will look at it." According to global rating agency Moody's, the corporate tax slash and the money transfer to the central government from RBI is only equivalent to around 0.3% of GDP in the current fiscal year. This further narrow fiscal room for manoeuvre. However, Moody’s described the rate reduction as credit positive for companies because it will enable them to generate higher post-tax incomes.
To provide relief to companies that continue to avail exemptions and incentives, the rate of Minimum Alternate Tax (MAT) was also reduced from the existing 18.5% to 15%. Also, the super-rich tax introduced in Sitharaman's maiden budget on July 5 by way of a higher surcharge on income, will not apply on capital gains arising on sale of equity shares in a company or business that is liable to pay securities transaction tax (STT). The enhanced surcharge shall also not apply to capital gains arising on sale of any security, including derivatives in the hands of foreign portfolio investors, she said. She also provided relief to the listed companies that have already made a public announcement of buyback of shares before July 5, 2019, tax on such buyback shall not be charged.