Lok sabha Passes “THE TAXATION LAWS (AMENDMENT) BILL, 2019”

THE TAXATION LAWS (AMENDMENT) BILL, 2019

The taxation laws (amendment) bill, 2019 was passed in the Lok Sabha on December 2, 2019. It seeks to amend the Income Tax Act of 1961. The bill was introduced in the Lok Sabha on November 25, 2019. The bill was introduced to replace the ordinance promulgated by the president in September 2019 to reduce the corporate tax rates. The ordinance proposed lower tax rate options for domestic companies to promote growth and investment and attract fresh investment in the domestic manufacturing sector. This bill will replace the ordinance and amend both the Income Tax Act, 1961 as well as Finance (No 2) Act 2019.

Key features of the Bill

1. Currently, the domestic companies with an annual turnover of up to 400 crores pay income tax at the rate of 25 percent and the rest of the companies must pay income tax at the rate of 30 percent. This bill will provide an option to the domestic companies to pay tax at the rate of 22 percent but provided, the companies cannot claim deductions under the Income Tax Act of 1961.

2. To promote startups, this bill provides an option to the new domestic manufacturing companies to pay income tax at the rate of 15 percent, provided they do not claim any other deductions. These new domestic manufacturing companies must set up and registered after September 30, 2019 and start manufacturing before April 1, 2019.

3. A company can choose to opt for the new tax rates in the financial year assessment year or any other financial year in the future. Once a company exercises this option, the chosen provision will apply for all subsequent years

4. For the company which has chosen the new tax rates, the provisions regarding the Minimum Alternate Tax (MAT) will not apply. MAT is nothing but the minimum tax rates required for a company to pay in case its normal tax liability after claiming deductions falls below a certain limit.

5. The bill also reduces the MAT rate from 18.5 percent to 15percent with effect from the financial year 2020-2021. This MAT credit can be used by a company to pay tax in the future (within a 15-year period).

6. The Bill clarifies that certain businesses will not be considered as manufacturing businesses. These include businesses engaged in development of computer software, printing of books, and production of cinematograph film, mining, and any other business notified by the central government.

7. A flat 15% rate of surcharge will be applicable for capital gains. A surcharge is levied on top of the tax paid on income by the companies. The Bill separates surcharge on capital gains from that on all other income.

Comparison of corporate tax rates across major countries (2018)

AsiaTax rateAsiaTax rateEuropeTax rateAmericasTax rateOthersTax rateHong Kong16.5%Indonesia25%UK19%USA25.8%South Africa28%Singapore17%China25%Russia20%Canada26.8%New Zealand28%Thailand20%South Korea27.5%Italy27.8%Argentina30%Australia30%Vietnam20%Japan29.7%Germany29.8%Mexico30% ––Malaysia24%India#35%France34.4%Brazil34% ––

Source– OECD Corporate Tax Statistics 2018

The table below gives a comparison of the corporate tax rates across major countries during the year 2018. It is clear from the comparison that India has levied the highest tax. The Bill provides that domestic companies can opt for the 22% tax rate and new domestic manufacturing companies can opt for the 15% tax rate, provided they do not claim certain deductions. Finance minister Nirmala Sitharaman said her government is not merely a reactive government which waits for the budget every year to provide remedy to a situation during the debate in the Lok Sabha for replacing the ordinance promulgated by the president. She also added that the bill is the response for the  emerging global challenges.

To view/download the bill: THE TAXATION LAWS (AMENDMENT) BILL, 2019

– Ukkash F

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