India to plan tax holiday to win new investments

MUMBAI: India’s trade ministry is proposing a tax holiday for companies bringing new investments as the government explores measures to support the economy amid the coronavirus pandemic, according to people familiar with the matter.

The proposal to give a 10-year full tax exemption to companies making new investment upwards of Us$500mil is being evaluated by the finance ministry, said the people, who asked not to be identified citing rules. The plan required companies to start operations within three years from June 1, and would cover sectors including medical devices, electronics, telecom equipment and capital goods, they said.

Another variant of the programme will be to provide a four-year tax holiday to companies that invest Us$100mil or more in labour-intensive sectors such as textiles, food processing, leather, and footwear. A lower corporate tax rate of 10% is proposed for the next six years, the people said. The proposal has to be approved by the finance ministry and, so far, it hasn’t taken a decision.

From offering easy access to land for factories leaving China to tax breaks for new plants, Prime Minister Narendra Modi’s administration is trying to lure investors and stop the coronavirus pandemic from wrecking the economy.

Asia’s third-largest economy is hurtling toward its first full-year contraction in four decades as India has so far failed to provide a big stimulus, given the government’s limited fiscal room, even as an estimated 122 million people lost jobs in April and consumer demand evaporated.