With slowdown hitting our economy, the Finance Ministry has recently announced a series of relief measures. Reduction of basic corporate tax rates from 30% to 22% for domestic corporates while from 25% to 15% for newbies in the market (costing the government around 1.45 lakh crore rupees) is the most important.
While we would have heard about these historic tax slashes and a whole lot of debate it invited but not many of us would know about some simple yet essential facts associated with it. These key facts would be our focus area for discussion through a student’s viewpoint:
Aim of it
Amid the present slowdown, dwindling GDP growth rate and a surge in unemployment it has become the government’s top priority to revive the economy. Two main benefits which we are expecting from these steps are:
- Extending support to our domestic corporate sector, which has been affected by low demand and encourages them to invest.
- Additionally, lower tax rates would attract foreign investors, thus bringing more money into the system and creating new opportunities.
Would it work?
A very genuine question which arises in our mind about the above reforms is its efficiency in achieving the desired targets.
The corporate sector has whole-heartedly welcomed the reform. However, it has also been pointed that expansion by big companies is very unlikely as they are already on their saturation level of production (consumer demand trends are not so exciting) and they would not like to risk their money in such a situation.
Also, there is still doubt about the job sector as signs of corporate reluctance towards expansion, and weak market demands are not very promising signs for the industry.
Would it benefit?
The party which I would like to focus here while talking about benefits is the consumer. Will, the consumer, receive benefits of cost reduction? According to experts, companies would definitely provide attractive discounts for they want to sell more, but it wouldn’t be that much as companies have already provided customers with whatever best they could offer and there is limited room for any such further benefits.
Challenges
Although the bold step of government deserves appreciation, still there are challenges like:
- The biggest concern of economists is the foregone tax of Rs 1.45 lakh crore, which will lead to a higher fiscal deficit, thus forcing the government to borrow more money.
- The step may provide relief to the corporate sector, but the problem of weak demand and unemployment needs to be addressed further.
As a student, I would like to quote that our nation has the potential to become an economic superpower, but these are the issues which we must learn to tackle.
