The Finance Minister unveiled Union Budget 2019-20 with proposals to revive efforts to attract companies for setting up manufacturing units in India.
By Ashesh R. Safi, Jigar Shah and Suraj Nair
The re-elected government returned to power with one of the largest mandates ever witnessed in India’s recent history. This depicted the depth of confidence entrusted by the people of India. Even the industry at large expects reforms from the government’s second term to boost economic growth, which has been sluggish of late.
When the government started its first term in 2014, one of the key policy frameworks laid down was ‘Make in India’. As the Indian economy was leaning toward the service sector for over a decade, the government came up with the Make in India policy, inviting global corporations to set-up manufacturing facilities in India. It was launched with the objective of job creation and skill enhancement in 25 sectors of the economy and to transform India into a global design and manufacturing hub. This was regarded as the key driver to develop job opportunities and to enhance economic growth by increasing industrial output. Although the policy was hailed by the industry, it garnered limited success.
In order to supplement the strategy, the central government framed various policies to enhance ease of doing business. India jumped to 77th place out of 190 countries in the World Banks' 2018 Ease of Doing Business Index.
With the government again re-elected in May 2019, global industrialists and corporations now have been awaiting radical reforms to fuel the economy and trigger the growth trajectory for India. The government, in line with the expectations, has focused on massive reforms with specific focus on industrial growth. The Finance Minister unveiled Union Budget 2019-20 with proposals to revive efforts to attract companies for setting up manufacturing units in India.
The finance minister laid emphasis on inviting global companies to set up high-tech manufacturing facilities in sunrise and advanced technology areas such as Semi-conductor Fabrication (FAB), Solar Photo Voltaic cells, Lithium storage batteries, Solar electric charging infrastructure, Computer Servers, Laptops, etc. The finance minister also specified that the government shall grant investment linked income tax exemptions under 35AD of the Income Tax Act, 1961 and other indirect tax benefits to such manufacturers.
Though the announcement was made by the finance minister, Finance Bill 2019 does not encompass requisite provisions. We believe that an amendment to the Finance Bill 2019 shall be moved before its enactment.
Although high tax and complex administrative structure in India has always been a hindrance in attracting global investments, the large consumer base and unchartered rural economy has been the incentive for businesses to invest in India. The re-elected government has consistently made efforts to reduce tax on corporations, with appropriate focus on anti-abuse measures, and to address bureaucratic obstacles to boost investments in India.
This announcement gains significance as global manufacturers are now compelled to rethink their manufacturing dependence on China. The focus would now turn to the administrative framework which shall be laid down by the government, as cutting of red tape is imperative to transform India into the next manufacturing destination.
Considering all above factors, it can be said that an investor may plan to establish LLP as against a company, which could be equally true for proprietors wherein rate of surcharge has been increased to 20 percent in case when income exceeds Rs 2 crores but does not exceed Rs 5 cores and 37 percent when income exceeds Rs 5 cores, which results into effective tax rates of 37.44 percent and 42.74 percent respectively.Ashesh R. Safi is Partner, Jigar Shah is Senior Manager and Suraj Nair is Manager with Deloitte Haskins and Sells LLP. LLP Views are personalThe Great Diwali Discount!
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