Nirmala Sitharaman delivered what Arun Jaitley had envisioned! A blockbuster cut down of taxes has boosted the spirit of the Economy

The Finance minister announced a tax cut and the market responded with benchmark indices closing with biggest single day gain in last 10 years.

Economy experts are calling it a ‘Friday Blockbuster’.

Finance Minister Nirmala Sitharaman announced a cut in corporate tax rates to 22 percent for existing domestic companies and 15 percent for new domestic manufacturing companies through an ordinance.

The effective corporate tax for domestic companies will become 25.17 percent, including surcharge and cess and without exemptions.

A big measure to boost the economy. And many giants in the industry welcomed the move.

Kiran Majumdar of Biocon was among the first to congratulate the finance minister . She Tweeted ‘My hats off to Nirmala Sitharaman’.

Many experts are all praises for the Finance Minister and they believe Nirmala ji just delivered what Late Arun Jaitley had envisioned for Indian economy.

In his 2015 budget speech, former Finance Minister Arun Jaitley proposed that the rate of corporate tax would be brought down from 30 percent to 25 percent over the next four years. Jaitley said that the high corporate tax rates, accompanied by too many exemptions, were hurting both revenues and investments.

With her latest announcement on corporate tax rate cuts, Sitharaman has implemented Jaitley’s 2015 proposal.

The earlier 30 percent rate of corporate tax in India was higher than that in other major Asian economies, a factor that was hurting the domestic industry.

Previously, companies were also required to pay a minimum alternate tax (MAT) at 18.5 percent on book profits.

Sitharaman has reduced MAT to 15 percent from 18.5 percent for companies that continue to avail exemptions. However, companies that choose the 22 percent corporate tax slab will not have to pay the MAT.

Arun Jaitley proposed this idea in 2015 saying that tax reduction would lead to a higher level of investment and growth along with more jobs.

How this announcement will turn tables for Indian economy?!

A twitterati called this the best shot so far for Modinomics!

  • The battle on Black-money waged by Prime minister will now find a long term leash! High taxes had  motivated people to evade tax in every possible way. With slashing of taxes that motivation has been diluted big time today!
  • An honest, compliant, economic powerhouse of a new India has now now enabled.

Does lower tax impact government earning?

For a common man a question may arise, if government cut taxes then won’t it be facing loss?!

  • The fact is, this concept of government is ready to earn less and spend more is totally wrong. Laffer Curve of economics has clearly stands proven for 100s of years.
  • Tax-collection to Tax-rate exhibits a convexity.

Total taxes collected actually go up when tax rates are reduced. The attraction of black-money will be reduced.

  • A straight forward the reduction in 10% almost of corporate tax creates a straight jump of 20% almost,in the net present value of enterprises by the DCF method.
  • Tax Collection too is a competitive business. India today stands taller in Global Competitiveness of taxation! Incentive for MNCs to choose India as a preferred tax jurisdiction rises manifold now.
  • NPV or Net Present Value of all new Projects in India jumps up big time with this cut. Economists are saying that an unimaginable flight of capital into India is about to begin. This announcement will give Make In India mighty wings now! With the cut taxes Narendra Modi’s dream of India as world’s factory can now become a reality.
  • The massive wealth effect as well as Income Effect in individual hands will escalate, multiply & magnify the Economic Multiplier.

Velocity of our Economy will shoot up. India will Earn more, & Govt will actually collect more taxes, in time.

The Reserve Bank of India Governor Shaktikanta Das has praised the government for its “bold” move to slash corporate tax rates in a bid to boost the ailing Indian economy.

“This is not bigger than the budget, this is bigger than at least 20 budgets,” said Samir Arora of Helios Capital.

The important thing to be noted here is, even though the economy slowdown is a global scenario which is naturally affecting India, the government of India is leaving no stones unturned to boost the economy.

This government is the most proactive and welcome to criticism and suggestions alike.

Instead of being in denial,the government has been taking massive steps in fact leaps to favour the hardworking men of this soil.

Yes twitteratis are quoting ‘the lakshmi pooja’ in this festive season will be a special one and Modi government 2.0 has again proved that this government cares for every citizens and will go to many lengths to live the dream of 5 trillion economy.

Source: Series of tweets by Kedionomics

Dr Sindhu Prashanth