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Corporate tax cut: Economists discuss the impact on the economy

Updated : September 20, 2019 10:03 PM IST

Battling a six-year low economic growth and a 45-year high unemployment rate, the government on Friday slashed corporate tax rates for companies by almost 10 percent to 25.17 percent to bring them at par with Asian rivals such as China and South Korea, as it looked to boost demand and investments.

Two-and-half-months after presenting her maiden Budget, that was hailed as "development-friendly" and "future-oriented", union finance minister Nirmala Sitharaman announced fiscal measures that will cost the government Rs 1.45 lakh crore in revenue annually and may potentially derail the country's fiscal deficit roadmap.

In the fourth phase of post-budget economic stimulus measures, Sitharaman cut base corporate tax for existing companies to 22 percent from current 30 percent; and for new manufacturing firms, incorporated after October 1, 2019, and starting operations before March 31, 2023, to 15 percent from current 25 percent.

This will be effective on the condition that these companies will not avail any other incentive or concession such as tax holiday enjoyed by units in Special Economic Zones (SEZ) and accelerated depreciation.

The effective tax rate for existing units, after considering surcharges and cess such as Swachh Bharat cess and education cess - which are levied on top of the income and corporate tax rates, will be 25.17 percent as compared to 34.94 percent now. For new units, it will be 17.01 percent as opposed to 29.12 percent now.

CNBC-TV18 spoke to Jaimini Bhagwati, RBI chair professor at ICRIER; A Prasanna, chief economist at I-SEC PD; Indranil Pan, chief economist at IDFC Bank; Upasna Bhardwaj, senior economist at Kotak Mahindra Bank, to analyse the measures announced by finance minister Nirmala Sitharaman.

(With inputs from PTI)
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