Government proposes to give one more year to manufacturing companies proposing to start production from their new greenfield facilities and qualify for lower corporate tax rate of 15 per cent.
In September last year the Finance Minister Nirmala Sitharaman sprang a surprise and cut tax paid by companies on profits they earn to their lowest. She also introduced a new lower corporate tax rate of 15 per cent for new manufacturing firms, incorporated after October 1, 2019 and starting operations before March 31, 2023.
Sources in finance ministry said that a proposal is now being considered to give new companies intending to put up manufacturing facility in the country an extra year till March, 2024 to start operations. Such measure would help businesses affected by Covid-19 pandemic to better plan their investment and manufacturing operations.
“The industry has been asking for more time to make new manufacturing units operations due to disruptions in work and investment this year due to Covid-19 pandemic. This is being looked and a decision would follow soon,” said the source quoted earlier.
Though there is a broad understanding that an years extension would give sufficient time to investors, there is also a thinking that whether it could less say six months.
At a FICCI National Executive Committee meeting on Monday, Sitharaman had said, “I will see what can be done. We want industry to benefit from the 15 per cent corporate tax rate on new investments and I take your point for considering an extension in the deadline of 31st March, 2023.”
The 15 per cent corporate tax rate is among the lowest globally and is considered attractive enough to spur investment manufacturing, revive growth and boost job creation. The effective tax rate, including surcharge and education cess, will be 17.16 per cent, which will still be very competitive.
With contract manufacturing qualifying for lower rate of tax, government hopes that 15 per cent rate would attract manufacturing companies that are looking to diversify their production out of China.
“Covid-19 has impacted all investment related activities. More time to complete projects and qualify for lower tax would certainty be an incentive that would allow companies to continue on their projects without reviewing it in the wake of current economic conditions,” said a top executive of solar equipment manufacturing company asking not to be named.