Corporate Tax rate cut – Will it reverse the slowdown?

Corporate tax rate cut may be effective in the long run, however, looks ineffective in providing immediate relief from the slowdown.

In her latest press conference, the finance minister announced a cut in the corporate tax rate to 25.17% (effective Tax Rate) to help the industry to tackle the current economic slowdown. This will have an impact on govt revenue by approx. 1.45 lac crores, whereas, the effective tax rate for newly established manufacturing companies, established on or after 1st Oct 2019 is reduced to 17.01%. This is a unique thing to happen as the direct tax rates are normally announced in the government budget.

According to industry experts, the move will be good for the overall profitability of companies. The lower tax rate for new manufacturing companies will attract foreign investors to invest in the country’s manufacturing industry and will boost make in India programme of the government.

Some experts suggest that the corporate tax rate cut may be effective in the long run, however, seems ineffective in providing immediate relief from the slowdown. The major reason current slowdown is that the consumers don’t have money to buy goods. So increasing the real purchasing power of the consumer would be a better way to deal with the current slowdown. The Tax that has a direct impact on the real purchasing power of the consumer is GST. The GST rates in India are much higher, a rate cut will make the product cheaper and affordable for consumer to buy and will help the industry to clear its already manufactured unsold inventories.