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Can Modi Government’s Corporate Tax Reduction Save The Indian Economy?

India has the lowest tax structure because of the introduction of this new ordinance. But will our economy grow if we keep reducing the corporate tax?

What are the features of the New Corporate Tax Reform?

As per the recent news in the field of Indian economy, the Indian Government has taken a massive step and has reduced the corporate tax rates to around 22%. This slashing of corporate taxes gets introduced only for existing domestic companies.

Many analysts have opined that because of this step, the Indian economy may result in a total revenue foregone of around 145 thousand crores in Indian rupees. Most of them have regarded this step as another ‘bold’ and ‘path changing’ attribute in the field of Indian economy.

Supporting the step of the Government in reducing the corporate taxes, Finance Minister Nirmala Sitharaman quoted that this tax is one of the primary foundations for extending all kinds of support to corporates all well as entrepreneurs in the country.

She also opined that the rates of taxation should be more corporate-friendly rather than providing suffocation to the corporates involved. This idea of reducing corporate taxes got proposed during the announcement of the Union Budget in 2019.

As the proposal of the Government was met with positive vibes from all corporates and eminent personalities, the Government passed a new ordinance on the Taxation Law on September 20th, 2019. According to this ordinance, the corporate taxes got reduced to 22% for existing domestic companies, and for new local companies, it got reduced to 15%.

Along with the reduction of corporate taxes, the Government has also undertaken specific other measures like granting tax reliefs to some corporates and entrepreneurs. Due to this feature, the Government has guaranteed itself a total revenue foregone around an estimated value of 145 thousand crores in Indian rupees.

This step from the Government is under consideration as another challenging step since its decision of exempting 342 startups from paying angel tax. This exemption step was taken on February 2019, and it further simplified the exemption process.

Many eminent leaders of the Industry have opined that this particular reform can place the corporate taxation structure of India on an equal level when compared with the taxation structure of some of the best countries in the world. And these are the same countries where doing business is considered extremely facilitating and encouraging.

So, many stalwarts opine that this attribute will help in setting our country on the right path trajectory in terms of growth and fuel our economy efficiently. If you consider among other countries globally, you can see that right now India has the lowest tax structure mainly because of the introduction of this new ordinance. But will our economy grow if we keep reducing the corporate taxes?

Yes, It will. How? The excess money which gets accumulated after cutting off the interest from the Global Central Bank will directly flow into our economy.  Such overflow of cash will surely uplift our economy and stimulate our growth in a higher range.

But a question to ponder here is that how will the corporates of other countries know that the corporate taxes have got reduced in our country? They will know, and for this, we have to thank our honorable Prime Minister Narendra Modi. Our Prime Minister has frequently been visiting most of the globally powerful nations and is projecting all these new reforms to the corporates staying there.

These points get projected so strongly in the other nations that many corporates are willing to start their new bases in India. Because of these attributes mentioned above, we can surely say that in the coming days of the future our country would see a lot of progress in both growth and economy. We can also justify that through these qualities, India will also become a super-power nation globally within a short period.

Now let us have a brief overview of the reforms introduced under the corporate taxation structure with its latest amendment:

What is the Industry expecting from the reduction in corporate tax? Will it boost the Make In India scheme?

Yes, it will boost the Make In India scheme for sure. The new taxation structure will help in inviting many entrepreneurs from all over the country which will surely benefit the Make In India scheme. This structure will not only improve the ease of doing business in our country but will also increase the inflow of capital for the Indian startup ecosystem.

Many industry stalwarts and economic experts believe that because of the new taxation structure, the employment sector will have a positive spiral impact to create substantial employment opportunities.

They also believe that this reform will further strengthen large Indian companies to become global tycoons. This feature will automatically transform the ‘Start-up India’ scheme into a ‘Scale-up India’ powerhouse.

Because of this, the manufacturing sector of the country will also get the required impetus for getting more significant rates in production. More significant standards in production imply that the pace of innovation will also improve in the country. When innovation comes in the middle of any topic, then we can never forget the term incubators.

Incubators are the people who play a prominent role in providing the ample inputs needed for innovation. We can see from these features that how one reform by the Government will change everything in the economic sector and spearhead the growth gradually.

And most people get confused here that this tax reduction will only help people who stay in urban areas and is only for corporates. No, that is entirely wrong.

This tax reduction is equally beneficial for people staying in rural areas and also in fields like agriculture. By this virtue, most of the people who are unaware of the digital payments will start using it, enhancing the feature even further.

Is the Fiscal Deficit in Rising? Is it a Concern? Should it be looked upon?

Indian Government has proved once again how serious it is to take its startup, corporate, and manufacturing sectors on par with global standards by introducing the latest taxation amendment.

Though the step taken by the Government is noteworthy, there is a rise in the fiscal deficit rates, and yes, it is a matter of concern for the growth of our economy.

The impact of high fiscal deficit can be genuinely seen in some of the corporate markets. But what is this deficit spending? Deficit spending is one of the most critical macro-economic tools.

Whenever deficit spending gets seen on any corporate sector, then it signifies an alert for the Government to stimulate its economy. So at such stages, the Government should bring in some reforms and should prevent its economy from slumping down further.

But is the Indian economy facing any deficits? If new fiscal rates get compared between the years 2011-2017, we can note that the GDP growth is slightly getting low in recent years. But this growth rate was mainly because of the under-rated performance of the manufacturing and agricultural sectors.

But what can we infer from this? We can understand from this quality that our Government is confident that its schemes such as Make In India and Startup India will surely stimulate the Indian economy. But they are patient regarding this, as they know even Rome wasn’t built in a day.

So, finally, are we on a positive side or a negative? Is our economy under an alarming note?

We are currently on a positive side, as our country is experiencing a growth trajectory in terms of GDP if the latest reports are taken into consideration. As per most recent releases are considered, that as indicated by the most recent figures wherein the GDP rates of India have phenomenally increased by 2.57 times from 2004-05 to 2018-19.

Furthermore, the GDP rates at constant prices in the year 2018-19 is estimated at INR 140.78 Lakh Crores which shows a growth rate of 6.81 percent over the GDP rates for the year 2017-18.

However, with issues ailing our economies such as bogus billings, continuous reduction in GST collection, fake invoicing among others and tax evasion the prominent question here is will these reforms shape our economy in a better way or worsen it further.