Finance Minister Nirmala Sitharaman on Friday proposed to slash Corporate Tax for domestic companies and new local manufacturing companies through an ordinance. It is being called bigger than 2019 Budget. It is an early Diwali Bonanza for Indian Corporate. Addressing her fourth press conference on the economy in the last two weeks, Finance Minister Nirmala Sitharaman announced slashing the corporate tax rate effectively to 25%. In order to boost the manufacturing sector and Government scheme of Make in India, companies’ setup after October 2019 will pay an effective tax of 17%. The government’s move will lead to a revenue loss of 1.45 lakh crores. The markets rejoiced after the announcement with the biggest one day gain in 10 years.
All about the Corporate Tax Cut Impact
According to the market researchers, it is one of the big announcements made by Nirmala Sithraman and it is certainly going to make big impact in the market. It also recognizes that the government is very keen to see the growth rate comeback to higher levels, the animal spirit comeback to the Indian Entrepreneurs and the reduction of the tax significantly is a great achievement. The bold step taken by the Finance Minister will give a boost not only to Indian domestic companies but also foreign direct investments and new companies that want to set up new ventures in India. Seeing the last two year numbers, the domestic mutual funds’ industries have got over 3 lakh crores of small person’s money and with the markets going down with the disappointments because of slower growth, the people who will lose money would be the small individual. And their confidence in the market. This is the first time capitalists have seen a massive inflow of savings from the common man.
During the same two years, the SPIs have put only some twenty thousand crores in equity. So the foreigners have been selling Indian Stock while the Indians have been batting for Indian Corporate. The sentiment boost like this sets the right tone in the business environment. Companies including International Companies like Apple who wants to set up a manufacturing unit in India will definitely take a decision because the tax rate is only 15%. International companies can compare rates with other emerging economy and markets. The product prices are also coming down like automobile companies; real estate developers are giving huge discounts. The Finance Minister, Nirmala Sitharaman has also announced real estate fund a few days ago to which the markets have not responded well. But the 20,000 crores which the government will mobilize, half from them and a half from the banks are going to the projects that are half complete, is going to the projects where sales are slow which will see a completion of housing projects. There is a huge amount of activity in the Finance Ministry to start the fund ASAP.
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There will be a pressure on the Fiscal deficit because slashing of corporate tax will bring a dent in the revenue. For this the government is thinking about other measures to fix this like selling of AIR India in the auction, selling of BPCL to a foreign company. The privatization and closing of some companies are to reduce the financial problem. In the Budget, the Finance Minister had said that they are looking at reducing the Government’s stake in many PSUs. Many processes can be seen completed this year and others can be seen being completed in the next financial year. Market researchers also claim that the Inflation in India has been all-time low: food inflation which is always very high has come down drastically; interest rates will come down further. Nirmala Sitharaman through this budget has instilled the confidence of seeing better times.
Highlights of the Economic analysts’ predictions on the Corporate Tax Cut:
- Lesser taxation means more profit. And companies can reduce the price at which it sells its products.
- Products shall be cheaper and less burden on the consumers. Increasing the sale of companies will bring an increase in consumerism.
- Companies will increase the investment expenditure which means more factories, employment, and an increase in GDP.
- Increase in the Research and development of the products which will result in a better quality of the products.
- With the increase in profits of the companies, the in evidently tax revenue of the government will also increase.
- The government will have more revenue for public investment, welfare schemes and better infrastructure.
- Reduce in the exchange rate of the goods in India and the increase in the capital inflow from all over the world.
The corporate tax is a direct tax imposed by the government on a firm’s profit. Any increase or reduction into corporate tax will influence the investment plans of any businessman. More the corporate tax, less Net profit for investors. Since the current GDP is 5% because of the less contribution from small and medium scale industries, the government is keen to restore the economy from the economic recession. Nevertheless, if the current tax rate remains unaltered in the long term at the expense of the short term then the move taken by Nirmala Sitharaman by slashing the corporate tax, may capitulate better results. There is no cause now that will keep away the new investments from the world’s largest democracy and largest market.
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