Sunday August 14, 2022

India cuts down corporate tax rates for domestic firms by 8pc

September 22, 2019

LAHORE: In what could be dubbed a rather sane and timely move to stimulate its slowing economic growth, India has opted to cut down corporate taxes on its domestic business houses from 30 per cent to 22 per cent, hoping the initiative would lead to a surge in investments and arrest the ever-soaring graph of unemployment in the country.

The announcement helped Indian stocks witness a bullish trend as the S&P BSE Sensex at Bombay Stock Exchange jumped more than five percent in mid-morning trade on Friday.

The S&P BSE Sensex at Bombay Stock Exchange is a free-float market-weighted stock market index of 30 well-established and financially sound companies listed on this bourse.

The Indian move does surely provide a food-for-thought to the Pakistani economic managers, who are yet again introducing run-of-the-mill policies, without paying any heed to the fact that gone are the times when copy-book initiatives, dating back to the classical eras of Malthus, Ricardo and Keynes, used to deliver. Changing times, of course, warrant out-of-the-box solutions and desperate measures to boost ailing economies.

Plagued by numerous economic ills, Indian businesses would now be required to pay 25.17 percent new tax rate, which includes all additional levies and surcharges.

Therefore, with a 25.17 percent new tax rate, India now stands somewhat at par with its Asian peers like Hong Kong with a 16.5 per cent tax rate, Singapore tax rates rest at 17 per cent, Thailand and Vietnam charge 20 per cent, Malaysia levies a tax slab of 24 per cent, Indonesia, South Korea and China charge 25 per cent from its domestic companies, though the tax tariff in Japan is a bit high at 30.6 per cent.

In Pakistan, the Corporate Tax rate is expected to be 31.00 percent by the end of this quarter.

The incumbent Narendra Modi-led BJP government expects to lose 1.45 trillion rupees (US $20.5billon, PKR3,201 billion) a year in revenues from the latest Corporate Tax cut.

India's Minister of Finance, Nirmala Sitharaman, stated during a Press conference: “Domestic manufacturing companies that are formed after October 1 will pay even less. They will face taxes of 15 percent, or 17 percent including surcharges and levies. To be eligible, these companies would have to start production by March 31, 2023. We are conscious of the impact this will have on our fiscal deficit. However, the boom in economic activity that the government expects to generate with the tax cuts should deliver greater revenue. The idea is that economic buoyancy will itself generate enough reasons for better revenue generation."

Meanwhile, the “Al-Jazeera Television” has reported: “The unexpected tax cuts come after the Reserve Bank of India, the central bank, announced a $24bn payout to the central government in August and Governor Shaktikanta Das cut interest rates four times in 2019 to a nine-year low. The tax cuts raised concerns over commitments made by the government, led by Prime Minister Narendra Modi, to keep to its budget deficit target of 3.3 percent for its 2019/2020 fiscal year.”

The “Al-Jazeera Television” maintained: “The South Asian economy is struggling to recover from a six-year low in GDP growth, and analysts have not been optimistic on the effects of Sitharaman's previous measures, which include merging state banks, scrapping a tax on foreign funds and allowing concessions on vehicle purchases.”

According to the IMF, Indian economy is the world’s fifth largest economy by Nominal GDP ($2.972 trillion) and the third-largest by Purchasing Power Parity (US$11.468 trillion).

With a GDP per capita of US$ 2199, India’s exports rest at $330 billion, imports stand at $514 billion, its Public Debt is US$2.1 trillion, FOREX reserves are valued at $429 billion and the country’s Gross External Debt has crossed the $543.0 billion mark already.