Bikky Khosla | 24 Sep, 2019
In the fourth tranche of post-Budget economic stimulus
measures, the Centre last week came out with Rs
1,45,000 crore stimulus which includes slashing of corporate tax to 22 percent
for domestic companies, lowering of tax of 15 percent for new manufacturing
firms and measures to boost the capital market. No doubt, this booster dose is
going to give a major push to the sagging economy, which registered a 6-year
low growth of 5 percent in the April-June quarter of FY20.
As far as corporate tax is concerned,
this is the biggest reduction in 28 years. At one stroke, the
rate has been slashed to 22 percent for domestic companies not availing
incentives/exemptions from earlier 30 percent. With various surcharges kicking
in, the actual rate for such companies now stands at 25.17 percent, but still it
is at par with other Asian countries such as China and South Korea. The new tax
rate, to be effective from 2019-20, will
certainly induce private investment and boost
consumption in the coming days.
In another major move, it was
announced that the new domestic companies incorporated on or after October 1,
2019, making fresh investment in manufacturing, will only have to pay income
tax at the rate of 15 percent from earlier 25 percent. Also, the enhanced
super-rich tax on capital gains on sale of share has been removed, and no tax will
be imposed on buyback of shares if companies have made announcement regarding
it before July 5, 2019. These measure are welcome.
Overall, with this single biggest tax
cut since India opened up its economy in 1991, the government will lose a
whopping amount of Rs 1.5 lakh crore in revenue annually, but the question is whether
it will now suffice to reverse the ongoing economic slowdown. Experts view that
a lot is yet to be done, with regards to bank NPAs, NBFCs and debt market. Also,
the stimulus further increases the government's fiscal risks.
I invite your opinions.