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Last updated: 23 Sep, 2019  

Up.9.Thmb.jpg Big-bang stimulus

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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.

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