Finance Minister Nirmala Sitharaman on Monday introduced the Taxation Laws (Amendment) Bill, 2019, in the Lok Sabha to replace the Ordinance that was used to slash corporate tax rate to stimulate growth rate in a slowing economy.
The Taxation Laws (Amendment) Bill, 2019 will replace the Taxation Laws (Amendment) Ordinance, 2019, promulgated on September 20, 2019, to cut the base corporate tax rate to 22 per cent from 30 per cent.
Sitharaman introduced the Bill just before the proceedings in the Lok Sabha were adjourned for the day following opposition uproar over political developments in Maharashtra.
Also, the International Financial Services Centres (IFSCs) Authority Bill, 2019, that provides for creation of a unified financial regulator for IFSCs was introduced amid a din over the Maharashtra developments.
Sitharaman had on September 20 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 corporate tax cut follows other measures by the government to prop up slowing GDP growth adopted since the May general elections. These include efforts to reduce red tape and boost foreign direct investment (FDI), and plans to consolidate the state-owned banks.
As Parliament was not in session and there was a need to provide fiscal stimulus to attract investments, generate employment and boost the economy, the President of India, in the exercise of powers under Article 123(1) of the Indian Constitution, had promulgated an Ordinance to make certain amendments to Income Tax Act, 1961.
As per constitutional process, 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 before expiration of the above period, 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 August 24, 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 July 5, 2019.
Faltering domestic demand, weak global trade environment, asset-quality challenges at banks and funding pressure on non-banking financial companies have contributed to the economic slowdown. Gross domestic product (GDP) growth slowed for a fifth consecutive quarter in April-June to 5 per cent, the slowest pace in six years.
International credit rating agencies have cut India’s GDP growth forecast for 2019-20 pronounced slowdown due to long-lasting factors.
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 in a meeting held on February 6 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 February 12, 2019.
The withdrawal from Rajya Sabha has been necessitated as 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.
Currently, the banking, capital markets and insurance sectors in IFSCs are regulated by multiple regulators i.e. RBI, Sebi and Irdai.