India reforms tax system to boost investment

27. November 2019

While the trade dispute between the US and China continues to weaken the global economy and investors are reluctant to react, India has created facts with the surprising adoption of a comprehensive reform package and plans to boost the country’s economy massively. Analysts and economists even expect India to overtake China in terms of growth rates from 2021. In detail, the reform will reduce VAT retroactively to 1 April 2019 and relieve companies of almost 1.5 trillion Rupees annually. The basic tax rate will be reduced from 30 to 22 percent, and the effective tax rate will fall by around ten percentage points to an average of 25 percent due to local surcharges and industry differences.

In addition, young companies will receive a reduced tax rate of 15 percent for certain investments. There have also been changes on the capital market, with share buybacks now exempt from taxation. Converted to India’s gross domestic product, the package of measures adopted represents around 0.7 percent and 30 percent respectively of total tax revenue.

In the long term, the tax reform should sustainably strengthen the willingness of Indian industry to invest. Although investments grew by an average of 15 percent between 2000 and 2008, the financial and economic crisis caused a slump to 8 percent per year and the past year 2018 saw a low of seven percent. In addition to the hoped-for increase in investments as a result of the reform, further interest rate cuts by the central bank are expected as an incentive. The Indian government under President Modi is continuously working on the country’s competitiveness. India’s numerous and young population offers very good conditions for high growth rates and economic productivity. Products manufactured in India are also subject to approval by Indian certifications such as AIS (ARAI), BIS, WPC, TEC or PESO. Find out in good time whether your product requires certification in India.
Please do not hesitate to contact us for further details and consultation. You can contact us via e-mail, or call us (UK: +44 2071931135, Rest of Europe: +49 69 2713769150, US: +1 773 654-2673).
You can also download our brochures about the compulsory certifications here.