Govt plans major tax alignments for equities; move aims to boost investor sentiment, bring in more forex

After the recent corporate tax cuts, the government is planning a series of tax alignments for equities in the coming weeks, move that will boost the investor sentiment and subsequently attract more foreign exchange into the country, said a media report.

From @CNBC_Awaaz: Govt reviews equity-related tax rate rationalisation, may look for one tax rate than multiple rates. PM will decide on timing of the announcement, reports @RoyLakshman attributing sources pic.twitter.com/LdzzEWCoQB

— CNBC-TV18 (@CNBCTV18Live) October 29, 2019

The Prime Minister’s Office (PMO) is reviewing the current structure of Long Term Capital Gains (LTCG) tax, the Securities Transaction Tax (STT) and Dividend Distribution Tax (DDT) in consultation with the Finance Ministry’s Revenue Department and NITI Aayog, reported CNBC Awaaz citing sources in the Finance Ministry and NITI Aayog. [caption id=“attachment_4748931” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] The steps may be announced before or during the Budget. Finance Minister Nirmala Sitharaman is expected to present the Budget for the financial year 2020-21 on 3 February next year, said the report. “Now a group of officials is preparing the groundwork which is likely to be finalised by November-end,” the report said quoting a source in the know of the matter. In September this year, in a major fiscal booster, the government had slashed corporate tax to 22 percent without exemptions or incentives for the domestic and new manufacturing companies. The government had slashed the income tax rate for companies by almost 10 percentage points to 25.17 percent. It also offered a lower rate to 17.01 percent for new manufacturing firms to boost economic growth rate from a six-year low by incentivising investments to help create jobs. Companies opting for 22 percent income tax slab won’t have to pay minimum alternative tax and after considering surcharges and cess, the effective tax rate will be 25.17 percent. Sitharaman had said the reduction in tax rates had been done by promulgating an ordinance to an amendment to the Income Tax Act. She said the revenue foregone on reduction in corporate tax and other relief measures would be Rs 1.45 lakh crore annually. “In order to promote growth and investment, a new provision has been inserted in the Income Tax Act, with effect from the financial year 2020. It will allow any domestic company an option to pay income tax at 22 percent subject to the condition that they will not avail any exemption or incentives,” the finance minister had said then. Following the corporate tax cut, the domestic corporate tax structure became the lowest in Southeast Asia. Besides this, foreign investor inflows reportedly improved sharply and major indices are less than three percent away from record highs. --With inputs from agencies