Re: Govt slashes corporate tax rate to just 22% - Impact on auto industry & otherwise A structural change in the approach to corporate tax is what has happened reflecting also the Govt's (correct) understanding that when income is left in the hands of the income earner ie business or individual it gets more efficiently used than when taxed and put into the hands of any Govt. Not surprisingly many citizens are mixing this up with a knee jerk reaction, a Howdy Modi ploy or a justification for lower prices or why were individual tax rates not lowered etc etc.
In the eyes of an investing businessman like me what the Govt has done is to take one big step forward towards making India at least one of the beneficiaries of the potential move of some manufacturing out of China. Given US politics this represents a permanent shift of direction - good for the world; good for the rest of Asia. Even if only one-sixth of China's manufacturing base moves out over the next 10 years that will be ~$600 billion. Even if only one-sixth of that came to India it will still be $100 billion or a roughly 12.5% lift to our seriously fragile manufacturing sector. As Volkman's chart in post number #23 shows in one swoop India has moved from having the highest corporate tax in the Asian economy to somewhere in the lower one-third. Many other steps are also needed - taxman's predictability of how tax rules are interpreted ie stop tax terrorism; Govt approvals for setting up a manufacturing unit are still too many and still suck; make the Green laws sensible and not open to interpretation by ignorant non-technical bureaucrats; and of course labour laws, labour laws, labour laws.
The timing of this fundamental shift in tax philosophy is of course linked to the sentiment in the economy going down but above all else I believe it reflects seriousness on part of the Govt to boost manufacturing in India. Every company I am associated with is filled with active discussion on how can this opportunity be used (especially the reduction of Minimum Alternative Tax) to drive growth, expansion etc.
Also most of us citizens do not get to see the tussle between change driving politicians and bureaucrats reckon with from those who don't want the change and wish us back to 1974. And trust me a significant part of the bureaucracy is still caught up in Nehruvian socialist thinking and hate that each step of liberalization diminishes their petty power. To combat this those who believe in change use a external crises to drive home their agenda with suddenness.
The FM is taking a bet that over two years the increase in the economy, corporate profitability and tax compliance will help make up for this hamper and keep the fiscal deficit in control. I am no economist. This is just the perspective of a businessman. |