India Inc cheers corporate tax cut, simpler rules

By Sumeet Chatterjee

MUMBAI (Reuters) - Indian businesses, recovering from years of sluggish growth, welcomed budget plans on Saturday that will cut the corporate tax rate and introduce a single national goods and services tax (GST) to replace a complex array of local duties.

Executives said measures announced by Finance Minister Arun Jaitley in the budget for the coming fiscal year should help rekindle growth, though questions remained over the ultimate impact of a raft of tax changes.

In his first full-year budget since Prime Minister Narendra Modi's election victory last May, Jaitley stopped short of a radical overhaul, but announced a raft of steps to encourage India's $2 trillion economy to take off.

"Big bang budget announcements are good for newspaper and TV headlines, but corporates really want ease of doing business, policy consistency and a clear vision," Areef Patel, executive vice-chairman of Patel Integrated Logistics Ltd (PATL.NS), said.

"The direction is very clear."

As part of the budget proposals, Jaitley said he would cut corporate tax to 25 percent over four years from a 30 percent rate that he said made India's industry "uncompetitive". Effective collection is just 23 percent.

"We lose out on both counts, i.e. we are considered as having a high corporate tax regime but we do not get that tax due to excessive exemptions," Jaitley said.

India's corporate tax of 33.99 percent, which includes various surcharges over the base rate, was higher than Asia's average corporate tax rate of 21.91 percent in 2014, according to consultants KPMG.

REVIVING GROWTH

Some executives said the budget lacked proposals to get Indian consumers spending, a lack of which has weighed on retailers and carmakers.

"We were expecting a strong impetus towards domestic demand creation that can lead to growth of Indian manufacturing sector," said Kishore Biyani, chairman of Future Group, one of India's biggest retailers.

"Leaving the (individual) income tax slabs and rates unchanged is going to leave less money in the hands of the common man to spend on domestically produced goods and services."

But businesses welcomed the expected introduction of GST by April 1, 2016. Indian companies have long argued for GST, saying it simplifies business planning and improves the collection of tax.

"GST... will go a long way in streamlining tax administration and result in higher tax collection for center and states," said Sunil Duggal, chief executive officer of consumer goods maker Dabur India Ltd (DABU.NS).

Jaitley also promised a "comprehensive bankruptcy code of global standards" in the next fiscal year, a relief to creditors and an important step if India is to lower a cost of capital that is among the highest in Asia.

(Additional reporting by Mumbai Newsroom; Editing by Clara Ferreira Marques and Louise Heavens)