Can the Recent Corporate Tax Cut by FM Help Revive the Indian Economy?

Can the Recent Corporate Tax Cut by FM Help Revive the Indian Economy?

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The 6-year low economic growth of 5% in the April-June quarter of 2019 called for major reforms by the Finance Ministry. The same was delivered by the ministry in September this year in the form of a corporate tax cut. But will the tax cut alone be able to revive the Indian economy? Find out more in this post.

The government’s endeavour to revive the Indian economy hit a major milestone, when the Finance Minister, Nirmala Sitharam, recently reduced corporate tax for new manufacturing units and domestic firms. As per the Finance Ministry, if a business entity does not take advantage of other tax sops, their tax rate can fall to 25.17%, from the current rate of 34.94%, with the recent tax cut.

While the move was welcomed by businesses and the same was witnessed in the Indian stock market that achieved the highest single-day rally in the last 10 years, is the tax cut adequate for boosting the Indian economy? Let us have a look-

Some of The Recent Reforms

While the corporate tax cut has been one of the biggest reforms, the government has also announced several other provisions in the recent past for boosting the Indian economy. For instance, in August this year, the increased surcharge that was levied on foreign portfolio investors in the Budget 2019 was rolled back in order to encourage capital market investment.

Even the angel tax provisions levied on startup investors was mooted — more than Rs. 70,000 crore was infused in PSU banks to help increase liquidity. So, while the recent corporate tax cut is definitely a major reform, the government has been consistently making changes to the current provisions to help all the different business sectors and improve the economy.

Current Corporate Taxes in India in Comparison to Global Peers

One of the key takeaways from the corporate tax cut is that it has made Indian businesses more competitive in the international markets. As a matter of fact, the corporate tax slab in India is now one of the lowest in the world.

If the base corporate tax rate in India is considered to be 25% after the rate cut, it is lower than the base tax rate of countries like the USA (27%), Germany (30%), Japan (30.62%), and Brazil (34%). If the tax cut is effectively implemented, it will help in reducing the capital cost and lead to increased business funding, especially from foreign entities.

Need for Other Reforms

While the corporate tax rate cut is a step in the right direction, several economists, industry experts, and income tax consultants believe that many such reforms are required to help boost the Indian economy. For instance, a lot of experts are of the opinion that the government should now focus on labour, land, and other financial reforms.

Similarly, individual business sectors such as electronic manufacturing would benefit abundantly with reforms such as improved infrastructure, cheaper credit, and higher incentives. This can help India in competing against countries such as China, Thailand, and Vietnam that are heavily involved in the export of electronic goods.

Reaching the $5 Trillion Economy Goal

The corporate tax rate cut of the extent announced by the Finance Ministry is sure to help the businesses in many different ways. But when we talk about reviving the Indian economy, it will take much more than the rate cut no matter how big it is.

Reforms like the ones discussed above and others with regards to the startup ecosystem in the country, personal tax rates, and specific industry-based reforms could play a significant role in improving the overall economic health of the country.

If the current trends are any sign of the future, the Finance Ministry would definitely consider these concerns and can announce reforms and policies to improve the economy in the broader sense and help India Inc. to get closer to the $5 trillion economy goal.

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