Last Friday, the Indian government caused euphoria among companies and the markets with a bang. Retroactively to April 1, 2019, corporate income tax will be reduced from the current 30 percent to 22 percent. The effective tax rate, including surcharges and education tax, is now just over 25 percent.
Prime Minister Modi is not the only one calling this measure “historic”. Almost all economists rate the surprisingly announced tax cut as courageous and expect it to provide significant impetus for the Indian economy. The head of the Reserve Bank of India (RBI) commented on the measures with these words “…they will be extremely positive for our economy.”
We, always critical observers, also rate this tax cut as a “great success” and expect it to provide greater growth impetus than the introduction of the GST, which is generally considered to be the “biggest tax reform in India”.
Make in India: Red carpet for foreign manufacturing companies
Foreign companies with branches in India also benefit from this tax reduction - especially those that (want to) produce in India.
For new production companies founded after October 1, 2019, a tax rate of 15 (instead of 25) percent will apply. This should give momentum to the hard-working but halting “Make in India” campaign.
In fact, this measure represents an unprecedented incentive to produce in India, as co-founder and co-managing director Mike Batra comments on the current euphoria directly from India: “Immediately after the announcement of this measure, a few German entrepreneurs actually came forward and are now considering adjusting their India strategy again in favor of a local branch or production.”
The BIG(GER) picture
With this tax cut, India not only wants to stimulate its domestic economy, but also improve location competition within Asia (particularly against Thailand and Indonesia, which are aggressively vying for investors) and thus attract international investors.
The stock exchange in Mumbai is celebrating. The leading index Sensex is almost ten percent higher today than before the announcement on Friday morning. As far as the mood of our foreign trade in India is concerned, we once again call on all exporters and companies operating in India to India business climate index to participate. The result will be published in November.
