Finance minister introduces bill to cut corporate tax rates

The Taxation Laws (Amendment) Bill, 2019 will replace the Taxation Laws (Amendment) Ordinance, 2019, promulgated on 20 September 2019, reducing the base corporate tax rate to 22 per cent from 30 per cent.

Sitharaman introduced the bill amidst opposition uproar over political developments in Maharashtra that forced adjournment of proceedings in the Lok Sabha.

The finance minister also introduced the International Financial Services Centres (IFSCs) Authority Bill, 2019, that provides for creation of a unified financial regulator for IFSCs amid the din.

The government has already (on 20 September} announced the lowering of the base corporate tax rate to 22 per cent from 30 per cent for companies that do not seek exemptions, and reduced the rate for some new manufacturing companies to 15 per cent from 25 per cent. Including surcharges and cesses (levies to raise funds for specific purposes), the effective corporate tax rate will drop by nearly 10 percentage points to 25.2 per cent.

The reduction in corporate tax rate follows other measures adopted by the government to prop up slowing GDP growth since May this year. These included efforts to reduce red tape, boost foreign direct investment (FDI) and merger of state-oned banks for business consolidation.

President of India had, in September, promulgated an Ordinance to the effect to make certain amendments to Income Tax Act, 1961 as Parliament was not in session and there was a need to provide fiscal stimulus to attract investments, boost the economy and generate employment.

An Ordinance promulgated under Article 123(1) has to be laid before both the Houses of Parliament and shall cease to operate at the expiration of six weeks from reassembly of Parliament, or if resolutions disapproving the Ordinance are passed by both the Houses, on the date on which resolutions are passed.

Besides reduction in corporate tax rates for existing and new domestic companies, the Ordinance also implemented the withdrawal of higher surcharge for non-corporates on certain capital market transactions announced earlier on 24 August  2019, and also provides relief from buyback tax for listed companies in respect of buybacks which were publicly announced prior to the Budget announcement on 5 July 2019.

The finance minister also produced the International Financial Services Centres Authority Bill, 2019. The bill provides for the establishment of the International Financial Services Centres Authority.

The Authority will consist of nine members, appointed by the central government. Members of the Authority will include four members to be nominated from the Reserve Bank of India (RBI), the Securities Exchange Board of India (Sebi), the Insurance Regulatory and Development Authority of India (Irdai), and the Pension Fund Regulatory and Development Authority besides chairperson.

The Authority will regulate financial products, financial services, and financial institutions in an IFSC which have been approved by any regulator (such as the RBI or Sebi), before the enactment of the bill; regulate any other financial products, services, or institutions in an IFSC, which may be notified by the central government; and recommend to the central government, any other financial services, products, or institutions which may be permitted in an IFSC.

The union cabinet, at its meeting held on 6 February, had approved the proposal for the establishment of a unified authority for regulating all financial services through the introduction of the International Financial Services Centres Authority Bill 2019 in Parliament. Subsequently, the bill was introduced in the Rajya Sabha on 12 February 2019.

The Lok Sabha Secretariat has now conveyed that this is a Finance Bill under Article 117(1) of the Constitution which should be introduced in the Lok Sabha accordingly with the recommendation of the President under Article 117(1) and 274(1) of the Constitution the bill has been withdrawal from Rajya Sabha.