Union Minister of Finance and Corporate affairs Nirmala Sitharaman to address a Press Conference today at 10 am in Goa.
The press conference is scheduled to be held ahead of the 37th meeting of the GST Council, headed by Union Finance Minister Nirmala Sitharaman and comprising representatives of all states and Union Territories (UTs) today in Goa. The meeting is to be held in the backdrop of economic growth hitting a six-year low of 5 percent for the first quarter of the current fiscal.
Experts believe measures announced by Finance Minister Nirmala Sitharaman over the last one month are not enough to drive an economy that grew 5 percent in the first quarter of FY20 against 5.8 percent in the previous quarter.
This has led to a widespread expectation of a cut in GST rates for auto, hotels, biscuits, cement etc. The hope for a cut is despite multiple reports suggesting it may not happen considering the revenue impact on Centre and states. India Inc. is also hoping there the number of GST slabs and bringing more items in the lower slab from 28 percent now.
Reports suggested that a reduction in GST rate for auto is unlikely due to expected sharp revenue loss for the government when the tax collection missed target and oil prices rising. But experts still feel the government can think of losing revenue for the short-to-medium term, then they can rollback.
The press conference has been pushed to 10.30 am, reports CNBC-TV18. PIB confirms on twitter presser soon.
Finance Ministry officials met at the Prime Minister's Office (PMO) late last night to give a presentation on the measures to be announced shortly, sources told CNBC-TV18.
Finance Minister LIVE now ##Finance Minister Nirmala Sitharaman addressing media, press conference LIVE now (Select key filed)
We today propose to slash corporate tax rate for domestic companies and new domestic manufacturing companies. Ordinance for cutting tax rate has been passed: Sitharaman
Total revenue foregone by undertaking these measures is Rs 1.45 lakh crore per year, says Sitharaman
Finance Minister also announced that effective tax for new companies shall be 17.01 percent, including cess and surcharge. Companies enjoying tax holidays would be able to avail concessional rates post the exemption period.
The new provision in the Income Tax Act, which will allow domestic companies to pay income tax at the rate of 22 percent, will be effective from FY19-20. It is subject o condition that they will not avail any incentive or exemptions.
RBI Governor Shaktikanta Das welcomes measures. Says: "This is definitely a bold and welcome measure. Highly positive for the economy."
Finance Minister Nirmala Sitharaman's corporate tax cut can be seen as an early Diwali for India Inc. as tax slashed to 25.17 percent for domestic companies. This is a reduction from 30 percent.
Reacting to the news, Nilesh Shah, Founder and Chief Executive Officer of Envision Capital Services told CNBC-TV 18 that the moves announced by the government are "extremely positive" and will increase efficiency. He also expects today's announcement to boost earnings hereon.
Indian economist and Congress (INC) member Jairam Ramesh however was less than enthused. He tweeted: A headline-itis afflicted, panic-stricken Modi Sarkar has cut corporate tax rates less than 3 months after a Budget and 4 months before the next one. This is welcome but it is doubtful whether investment will revive. This does nothing to dispel fear that pervades in India Inc. (sic)
Mahindra & Mahindra Managing Director Pawan Goenka took to twitter to share his views: Looks like Diwali has come early (sic)
RBI Governor, Shaktikanta Das said government's tax cut move today is 'bold & welcome'
Das said that the decision to cut taxes highly positive for the Indian economy. He added that they are not oblivious of fiscal impact because of today's steps and that there is a need to keep an eye out for financial stability. He added that there is some room for more reforms on land and labour and that the government must focus on quality of expenditure. Das said that he expects July-September GDP to be better due to government spending and that the bigger role in economic growth lies with the government. He pointed out that the tax rate cut announced today takes India closer to Asian peers.
FM exempts cos that announced a buyback before July 5 from buyback tax
This is a huge positive for companies like Infosys and Wipro that had announced a buyback prior to the Union Budget announcement on July 5.
Railway Minister Piyush Goyal: Congratulations to PM @NarendraModi ji & FM @NSitharaman for the pathbreaking announcement done to cut corporate taxes for domestic & new manufacturing companies which will boost ‘Make in India’, promote Investment & will create huge employment opportunities.
PM Modi
Calling today's announcements a "historic move" Prime Minister Narendra Modi posted on twitter that it will "give a great stimulus to #MakeInIndia, attract private investment from across the globe, improve the competitiveness of our private sector, create more jobs and result in a win-win for 130 crore Indians." (sic)
Motilal Oswal, Chairman and Managing Director of Motilal Oswal Financial Services said the tax cut is positive for all companies. "We do believe that we need fiscal stimulus to get out of this slowdown and monetary policy alone could not do that. Hence this move is very good for the country and markets," he added.
Shishir Baijal, Chairman & Managing Director of Knight Frank India said, "It is a milestone effort towards kick-starting the Indian economy and boost production. This substantial direct tax reduction will allow more liquidity for the corporates that are currently assuming drastic measures to protect their profitability."
He added that the reduction in corporate taxes will help organisations to grow and help boost employment restoring the balance in the economy, which will, therefore, lead to higher consumption leading to GDP growth. "As it is always the case, a high GDP growth leads to stronger end-user buying pattern and general financial confidence of making long-term commitments," Baijal pointed out.
"These measures will complement the monetary policy measures taken by the RBI in increasing liquidity and consumer spending. As a trickle-down effect of this, we should be hoping for a revival for the real estate sector as well. This boost will certainly accelerate demand for commercial spaces, but we understand that the financial stability expected will propel growth for the beleaguered residential market in the near future," he added.
Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote termed the move a "surgical strike on bears and negative sentiments in the economy".
"This will create an environment of surplus in the hands of corporates for making further investments and ease their liquidity concerns. Companies in consumer finance, private and public sector banks, and hotels all pay upwards of 32 percent tax will have maximum benefits, however rest of the sectors will have nominal positive impact. This move delivered by Modi 2.0 government in the interest of economy at the cost government exchequer in times of crises which will go down well in the history," he added.
Commenting on announcements made by the Finance Minister today, Ashishkumar Chauhan, MD & CEO of the BSE said the "slew of historic measures" has brought down Indian corporate tax rates to amongst the lowest in the world especially for the new manufacturing companies.
"These decisions will be celebrated as historic and will go a long way in improving ‘Ease of Doing Business In India’ even further. We, at BSE, welcome these moves and thank the Prime Minister and Finance Minister for promoting Indian industries. There are several other fiscal measures that have also been announced which all point to the government’s commitment to promote the business activities and enhance job creation manifold. These announcements will further boost the investor confidence and start the investment cycle,” Chauhan said.
He added that the removal of surcharge for domestic investors in line with the FPIs, will also go a long way in bringing much needed fresh investment and animal spirit in the India capital markets.
State Bank of India Chairman Rajnish Kumar called the corporate taxes across companies the "boldest reform in the last 28 years".
"Such a rate cut will boost corporate bottomline, facilitate a reduction in product prices. Additionally, the move to incentivise setting up new manufacturing units in India comes at the most opportune time for foreign companies who could be actively looking for opportunities to invest globally," Kumar said.
He also echoed Prime Minister Modi's view that these measures could "lead to India effectively integrating with the global supply chain and give a boost to Make in India campaign."
On the market situation post measures announced today, Shrikant S Chouhan, Senior Vice-President, Equity Technical Research at Kotak Securities said, "We earlier mentioned in our report that the market is entering into extreme pessimism and such market gives golden opportunity to invest. The market did exactly as per our expectation where it maintained its previous low of 10,637, forming a higher bottom today and reversed all losses."
"Market has turned upward for a longer time and is a classic bottoming out formation on all time frames and we would see the levels of 11,600. Buying is advisable at current levels and more on declines at around 11,100/11,000 which would be a major support area," he said.
Deepak Jasani, Head of Retail Research at HDFC securities said, "the markets have expectedly reacted very well to the relief measures announced today. The government has chosen to spur consumption and investment by giving reliefs in direct taxes (vs GST reliefs expected by different sectors)."
The loss in terms of tax revenues would take time to be offset by the higher tax revenues gained on consumption (out of higher dividends/buybacks announced by corporates due to Corporate tax savings) or investments in new facilities by corporates out of their savings. In the meanwhile the fiscal situation could see some pressure. This could impact the interest rates unless the compensating liquidity from FPIs and FDI is large enough, Jasani explained.
He added that reaction of FPIs to these impacts will be keenly observed. The markets could give some time for the above impact to trickle down before going back to cautious stance.
"Stressed corporates may however not benefit as the reliefs may not apply to them, as no GST reliefs have been announced. Large change in PSU divestment policy and changes in land, labour and judicial reforms may be more keenly awaited now than ever before. Kharif harvest outcome (and its impact on rural income and spend) and festive season consumption spend in urban areas in mid to end October will also be looked forward to," he noted.
Finance Minister's consultative approach has bolstered positive spirits in the industry, says Vikram Kirloskar, President of Confederation of Indian Industry (CII). He added that this is indicative of the government adopting a tax stimulus route rather than increasing government spending to help recover the economy.
No event can hide reality of the economic mess “HowdyModi” has driven India into, says Rahul Gandhi
Congress MP Rahul Gadhi took to twitter to react to the government's measures, posting: "Amazing what PM is ready to do for a stock market bump during his #HowdyIndianEconomy jamboree. At + 1.4 Lakh Crore Rs. the Houston event is the world's most expensive event, ever! But, no event can hide the reality of the economic mess “HowdyModi” has driven India into." (sic)
CEO of PMS Prabhudas Lilladher Ajay Bodke, called it a major boost to revive flagging animal spirits and position India as one of the most attractive business destinations.
"Government of India has announced a slew of measures that would act as a force multiplier for the flagging economic engine. The government has rolled out a red carpet that would ensure hundreds of billions of dollars of FDI & FII flows over the medium term by slashing corporate tax rate to 25 percent from 35 percent (22 percent from 30 percent without exemptions) for existing domestic companies; and an extremely attractive rate of 15 percent for new companies setting up manufacturing operations after October 01, 2019 and commencing operations before 2023," he added.
He echoed other sentiments likening the move to an early arrival of festival of lights (Diwali) and banishment of long period of darkness and gloom bothering the Indian economy.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services said the measures announced by the finance minister can be described as a 'New Deal' for the Indian economy. "The psychological stimulus from this 'New Deal' will be higher than the fiscal stimulus. Animal spirits will respond positively. The message from Dalal street is a clear signal. Bold move indeed," he added.
Engineering Sector Impact ##Tax reduction means better capital efficiency for the engineering sectorRead here why returns profile of new projects set to go up by a few more notches as the incentive to allocate capital increases
According to Mustafa Nadeem, CEO, Epic Research, reducing the corporate tax rate is a big boost for the market.
"This is huge for the market. There were few announcements that were keeping sentiments in check as FM was trying to boost market sentiments and improve the state of the economy by boosting exports, banks consolidation, recapitalisation and so on but reducing the corporate tax rate is a big boost," Nadeem said.
Amit Sharma, Managing Director of Miraj Cinemas called it a "superb reform", adding, "It will give incentive to domestic companies to invest more on stalled Capex and expansion."
Markets cheer fiscal stimulus ##Bulls may take Nifty to 12,000 by Dec after surgical strike on bears
A fiscal stimulus of Rs 1.45 lakh crore has finally come to cheer the markets and the economy, and it is a big boost to honest tax paying companies who were paying full tax rate. Read the full story here
Today’s reduction in corporate tax sends a powerful signal that the Government is absolutely determined to revive the economy. It also demonstrates government’s sensitivity and its faith in the corporate sector to contribute to the economic revival. This will improve the ability of India Inc to make fresh investments, speed up projects, and make a positive impact on job creation. It’s a very bold move and will improve the sentiment dramatically.
The cut in corporate tax to 25 percent from 30 percent (with exemptions) and removal of additional surcharge on capital gains made by FII and domestic investors etc are certainly positive news. Tax regime which has been confusing for overseas investors for some time has been addressed by Finance Minister Nirmala Sitharaman, he said, adding the sentiments have been very poor and this move certainly draw attention back towards Indian market.
The recent tax move is likely to provide a boost to the economy. We are revising our GDP growth forecast to 6.5 percent from 6.3 percent for 2019-20. The corporate tax cut is likely to not only attract greater foreign investments but could also support some revival in the capex cycle (driven by greater corporate savings). Our analysis show that a 10 percentreduction in corporate tax rate can result in 0.20bps to 0.50 bps increase in GDP growth (based on the tax multiplier for India, RBI Working Paper, 2013).
The government has taken a giant leap in tax reforms. It's a huge boost to corporates and will enhance India's position as a competitive destination for fresh foreign investments. ‘Make in India’ now gets a fresh impetus with reduced rates of corporate income tax. MAT rate reduction is also a bold move. Clarification on grandfathering of buyback tax on inflight buyback programs as of July 5,2019 is a comforting outcome. This would go a long way in restoring confidence in the market and nudge companies to make fresh investments.
This is a huge step in boosting the overall profitability of corporate India. This step along with some of the other measures announced including that the enhanced tax surcharge introduced in July 2019 shall not apply to Capital Gains on sale of equity share which is subject to STT (Securities Transactions Tax) would go a big way in restoring confidence in the Indian equity markets. One the biggest problems ailing the investment rate was low corporate savings and, to the extent, this tax cut boosts corporate savings, this is positive structurally for the improvement in private sector investment rate.
The announcement by Finance Minister Nirmala Sitharaman to reduce corporate tax will have a 'big sentimental impact', and also gives companies the flexibility of choosing between tax structures, said JSW Steel's Seshagiri Rao.
Read full story here.
"For achieving the dream of becoming a $5 trillion economy (by 2025), such a decision is important. I am sure the market will react positively to the move. We have already seen the share markets rallying," Union Minister Nitin Gadkari saidon the corporate tax rate cut announcement.
The stock markets responded positively to the relief measures announced today , with benchmark indices closing with biggest single-day gain in the last 10 years. Investors got richer by Rs 6,82,938.6 crore after the Sensex added 1,921 points and the Nifty gained 569 points.
Click here for details onall that transpired in the market today.
The direct benefit of the massive tax cut would be around 15 percenton earnings, 2.5 percent to 5 percenton book value and 30 bps to 80bps on capital position for most banks and NBFCs. It is tantamount to a large recapitalization of the financial system, strengthening growth capacity and loss-absorbing buffer. Since it’s a big step towards rekindling the corporate capex cycle and revitalizing sagging consumption, it would also be credit positive for Banks and NBFCs; undermining prospects of a deep and elongated NPL cycle. In general, risk aversion in the economy could reduce as the multiplier and sentimental impact of the corporate tax cuts play out. Our Top Picks are HDFC Bank, ICICI Bank and SBI.
We expect today's announcement to provide a big boost to business sentiment in the immediate term, with a modest knock on impact on consumption demand, particularly for big ticket items. However, the impact on fresh investment activity may be visible with a lag. Today's announcement would complement the expected further Repo rate cut in the October 2019 policy review. We continue to expect a 25 bps rate cut in the upcoming MPC review.
Government uses ordinance to amend taxation laws to effect announcements. The ordinance provides for a reduced rate of tax of 22 percent and 15 percent for certain domestic companies. The ordinance to amend taxation laws is effective immediately. It lowers tax rate to 22 percent (plus surcharge and cess) for certain domestic companies and to 15 percent (plus surcharge and cess) for domestic manufacturing companies.
