Corporate Tax Rate Cut - The Real Picture

person holding paper near pen and calculator

The variations need to float with the demands,
Else the country will suffer, and the government will have to face remands

What is the corporate tax?
A corporate tax is a levy placed on a firm's profit by the government, also called corporation tax or company tax, is a direct tax imposed by a jurisdiction on the income or capital of corporations or parallel limit entities. 
A gash in corporate tax:
India's effective tax rate ranged among the highest worldwide. After huge demand of emerging ventures, on Sept. 20, finance minister Nirmala Sitharaman announced the slashed corporate tax rate to 25% from 35% for existing companies, and to 17% from 25% for new manufacturing companies; if they start-up prior to March 2023. The slot is all prepared and India can swipe to the new taxation rule at any instant. Even the companies have an option to either pay the high tax rates or the new liberal tax.

What does the government expect?
By this sudden alteration:

  • The government expects the heightened private sector investment and thus, in turn, elevate overall economic growth of India.
  • Government is aiming at lifting business sentiment and spurring investments.
  • It is also targeting the investors that are stuck in China to get attracted towards India and enlighten the Indian economy.
  • To increase the emerging market and create an opportunity for fresh entrepreneurs.
  • To provide employment to skilled workers that might get possible if the number of start-ups increases.

Would the nation thrive?
In tandem, the government would face a decline of around Rs 1.45 lakh crore ($20 billion) in annual revenue and would overall cause monetary deficit. Thus, it would greatly affect the GDP.

  • This may fade the benefits of slashed interest rates provided by Reserve Bank of India and thus can turn the transmission process sluggish.
  • The government is surely going to lose high tax-paying corporates.
  • As the private companies are already ruling, this would give them feathers to own the seventh sky while there is no surety of the fact that customers are going to get benefitted from the private sector. As well as there are very less public sector industries paying high taxes so there is no transparent clue of consumer benefit.
  • As the gross monetary treasury of India is going to suffer, the government may raise the taxes in other sectors thus this is a red alert for frightening high prices.
  • There is a tremendous observation where overseas investors have doubled their position in index futures during the month.
  • The coal producer may see a 7 per cent rise in earnings following the reduced tax rates according to Coal India's expectations, the expected surge is yet to conquer the market.

The Positives:

  • Considering another aspect, it would create new investment opportunities for the private sector by rising consumer demand.
  • This announcement has already boosted up the nifty earnings I.e. almost from 16% to 25%. The Sensex shot up by 5.3 per cent and 2.8 per cent the following Monday, making this one of the largest two-day gains in recent history.
  • The abrupt impact would intensify the differences amidst the levels of companies, the company making opulent profits would amplify the income whole those striving would run on the same lane; overall the economy would swift with the same rate. For example, companies like Zee Entertainment, Tata Steel, Bajaj Finance, JSW steels, HDFC bank, bank, Mahindra Bank are already leading the business world. While Power Grip Corp, NTPC, Maruti Suzuki, Cipla may face gradual decline.
  • It would increase the share of profit-making industries in India over time. Tax cuts might also raise their explicit profit margins above 10 per cent.

Another way round:

  • The government should focus on widening the customer demand, that is already lagging due to unemployment and diminished wages.
  • Setting low values of corporate tax for emerging industries instead of chopping it for big money-making industries.
  • Encouraging entrepreneur education which will hype the fresh investments in the Indian economy.

The Surmise:
The corporate tax cut has more potentials on its side than just limiting itself as a tool to reverse the slowdown in the Indian economy, which has ended up in a continued 5% decline in the last 5 years. The strategy of government can succeed expectedly if the private sector, consumer demand, and structural reforms go hand in hand with the fluctuating economic growth. 

-Arpita Tiwari

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Corporate Tax Rate Cut - The Real Picture Corporate Tax Rate Cut - The Real Picture Reviewed by EMN on October 03, 2019 Rating: 5

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