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-   -   Govt slashes corporate tax rate to just 22% - Impact on auto industry & otherwise (https://www.team-bhp.com/forum/indian-car-scene/213442-govt-slashes-corporate-tax-rate-just-22-impact-auto-industry-otherwise.html)

Today was probably the biggest day in the history of the Indian Stock Market!

The corporate tax rate has been reduced by nearly whopping 10%.
https://www.livemint.com/news/india/...954944900.html

The government has slashed basic corporate tax rate to 22% from 30%. Including cess and other charges its like coming down from 35% to 25%

For new manufacturing companies it has been cut down to 15% from 25%.

There is no doubt that this would benefit the companies but the question is about the common man.

Will the companies reduce the car prices or absorb them into their profits?

Helps to keeps the margins higher inspite of falling sales I think. Am wonder how else does it help. Leaves more money for ads? Helps cut prices, offer freebies/discounts and still absorb the impact to margins?

Can't think of a really solid reason how it will help get customers buy more cars.

When corporations protest they get a tax rebate/reduction; why doesn't the Govt consider giving the ordinary tax payer a rebate/reduction on Income Tax. Instead we get "spammed" by the IT Dept to pay tax by email and SMS. None of this going to translate to reduced prices and buyers aren't going to flock to Maruti/Nexa showrooms, it will be good for the company and shareholders, that's all! Govt has done nothing to improve the consumer sentiment: where people would go out and buy. But has only addressed the investor sentiment.

Absolutely, I don't think manufacturers are going to pass any benefits due to overall improvement in their profits which otherwise are under pressure. It's a good announcement in the long term but they should give more buying power to the middle/ higher middle class.

How about passing IT benefits on the Auto loans for individuals as we don't get any depreciation benefits and pay over 30 % Taxes.

I have not seen them translating into wage growth. Govt used this opportunity to sneak in corporate tax cuts. And cuts are very difficult to roll back.

In US and Australia, tax cuts have just made rich richer. Gap has widened.

It would have been better if they had launched some infrastructure projects generating demand for services. And that does not include only roads, rails and airports.
They can create more govt primary hospitals in towns and rural areas. Create more schools.

Well, for the starters, todays announcements have a bigger impact on the overall market sentiments. The corporate sector was/is in a big mess since the last 6 months or so due to the global recession( if it can be called that) as well as domestic slowdown. We kept hearing news of employees being laid off and manufacturing companies running on 40/50 % capacities. Corporate sector is what is important for any economy as are medium and small enterprises, because that is where the volume comes from. So it is very important to have given the corporates a breather. This would also incentivise foreign investors especially the new rule of 15% income tax for new manufacturing companies being set up. These steps will go a long way in stabilising the economy which was in a free fall since the start of the new financial year.

Also, I have confirmed news that banks are instructed to ease the liquidity situation by offering loans and advances to deserving customers( don’t understand the meaning of that though;-) ). This means, the government realises that the liquidity situation is weak and has to be worked upon. So another pat on the back of the finance ministry for being pro active in their thoughts and actions.

I also wish they announced some tax relief for the middle class, but I am happy on the steps taken so far and hope that this gives the slagging economy a much needed red bull:-)

Agree! I guess they are hoping this will attract more companies to setup shop and improve the jobs landscape, which in turn, should revive the demand somewhat. Won't happen in a day, for sure. Maybe in due course.

Since the companies are claiming to be in the red, how does this help in the short term? I can see the value of it in the later years when the companies make profits.
If they had foregone the the revenues by reducing income tax rates people will spend thr money boosting consumption

Pathetic step by the government. The corporates were charged 30% on their profit (meaning after all the costs are deducted). I am being charged 30% and cost be damned. I would say let me deduct my costs and I will pay 35% of tax on my savings. This reduction in corporate tax will not benefit common people in any way. The senior management will get fatter pay cheques while workforce salary will stagnate in the name of less growth. Common people will wait for the "trickle down" indefinitely.

This reduction could have been passed on during the budget to make it seem genuine. How about individuals? That would have had a bigger impact. How about increasing the 80C limit? And see how funds would have flown into PPF, ELSS, LIC (the cash cow), more home loans. Why not introduce Auto loan interest under 80C to boost the Auto industry?

Problem: People aren't buying the cars and biscuits at the rate we are manufacturing them.

Solution offered: Here's 10% discount on the tax on your profit margin.

The confused citizen: How could this be the right solution? What am I missing to see that the stock market saw?

The elephant in the room that no government dares to address, is the BIG FAT BUREAUCRACY. I live in an industrial district (Coimbatore) and officials of all departments are ready to bribe tens of lakhs to get a transfer here.

While the government is all dressing up India to look like a manufacturing powerhouse with all these market friendly, news worthy announcements, the reality inside is that it is just an ecosystem full of leaches waiting for their official and unofficial dues.

Young population and cheap manufacturing is all our strengths but bureaucratic hurdles and continuous exploitation (diwali is around the corner, expect the local tax and other folks to make a friendly visit for the white covers) is keeping entrepreneurship away.

IMO Doesn't look like Govt is going to cut personal income tax. When asked about personal income tax, FM said she hasn't applied her mind to it. Such a dismissive stance sounds brash IMHO.



Just like news media, when corporates pay, corporate interest is served, viewers/citizens interest be damned. And to think that they command to be applauded with a standing ovation just for being re-elected.

Anyway, atleast this cut will make factories attractive & reduce the capital flight through the Liberal Remittance Scheme.

Pawan Goenka on CNBC TV18:

- A typical automobile company in India with revenues of Rs. 100 has a PBT of Rs. 8.
- We pay around 30% of PBT as tax. So tax outgo will Rs. 2.4
- Because of tax cut, we will now be paying 25% of PBT as tax.
- New tax outgo will be Rs. 2
- Hence, there is not much scope for reduction in prices. Max reduction in price will only be 0.4%.
- Instead of price cuts, manufacturers might offer bigger festive discounts.

Income Tax cut may not lead to price cut, highly unlikely in my opinion. What it targets to do is leave more money in the hands of companies and hope that they will re-invest the surplus in creating more capacities and giving jobs to more people.


However, the question here is why will a company invest in capacity creation when consumer confidence is down and they are not buying? Along with corporate tax cut, the Govt ought to give relief to individual tax payers by reducing their IT rates and also rationalizing GST on items consumed by end user (who does not have an option to claim ITC). When an individual has more money left with him/her there is a higher propensity to spend than save which is what is needed in the current scenario.