The Trump Tax Cut
The Trump Tax Cut
US TCJA (The Tax Cuts and Jobs Act OR Trump Tax Cut) is the new acronym that’s trending now in the tax world. USA is on the verge of finalizing path-breaking tax reforms. The reform measures — which attracted significant cynicism, particularly about the time frame of their implementation — are soon going to become a reality. The tax reform proposes to significantly reduce the existing corporate tax rates from 35% to 20% (or 22% as suggested by some quarters). While Trump couldn’t get his way to make it 15% corporate tax rate, BUT still 20% tax rate would catapult U.S. as one of the most attractive investment destination with competitive tax structure. This bill is expected to reduce net corporate taxes by about $600 billion over 10 years.
OBJECTIVE: – The primary goal of this tax bill is to strengthen the economy. But as per few analysts the bill would generate very little additional economic growth over the next decade
US House and the Senate have agreed to most of the reforms, in principle, and given the speed at which this has moved in the last few weeks, the passage of the tax reforms seems to be a reality before Christmas. The changes proposed are radical and would have implications across the globe — including in India.
IMPACT on India:-
U.S. MNCs operating in India would start to relook at the profits that are made in India as the higher tax rate in India would add to their tax burden. This could also see significant changes in the transfer pricing policies adopted by U.S. MNCs in remunerating the Indian subsidiaries.
Indian MNCs operating in U.S. — especially in the information technology space, would want to keep more profits in the U.S. rather than in India, to minimise the overall tax burden and use those profits to expand globally.
Reduction in the U.S. corporate tax rates may also prompt other countries, including India, to look at their domestic tax rates to retain their competitive positions in the world, obviously balancing this with the need to rein in the fiscal deficit.