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Indian Market Jolts Amid Government Corporate Tax Slashes

© AP Photo / Shizuo KambayashiA man looks at an electronic stock indicator of a securities firm in Tokyo
A man looks at an electronic stock indicator of a securities firm in Tokyo  - Sputnik International
New Delhi (Sputnik): The Indian stock market surged over 5% in early trading on Friday after the country's Finance Minister Nirmala Sitharaman announced a massive boost for the economy, which witnessed a six-year low growth rate of 5% during April-June this year.

During a media briefing in the Indian state of Goa, Sitharaman said the effective corporate tax rate would be uniformed at 25.75% from 30% and scrapped the minimum alternative tax for domestic companies.

“With effect from financial year 2019-20 ... any domestic company has an option to pay income tax at the rate of 22%, subject to condition that they will not avail any exemption", the minister said, adding the effective tax rate for such companies will be around 25%, inclusive of surcharges.

To attract fresh investment in manufacturing and thereby provide a boost to the "Make-in-India" initiative, new Indian companies set up after October 2019 will have to pay tax at a 15 percent rate, the minister added.

With this tax relief, the minister said the government will lose around $20.5 billion in taxes in 2019-2020.

To stabilise the flow of funds into the market, the minister also said an enhanced surcharge that was announced for the 2019 budget will not apply on capital gains arising from the sale of any security, including derivatives by Foreign Portfolio Investors (FPI).

“The reduction in corporate tax rate will augur well for our economy", India's apex bank RBI chief Shaktikanta Das said at a conference in Mumbai.

This is the third major announcement in last two weeks to revive private investment and arrest economic downturn. The Indian economy has remained sluggish, with GDP growth being the slowest in over six years in the face of a sharp deceleration in consumer demand and lukewarm investment.

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