Mega Tax Cuts Reignite Reforms, Markets

FM Unleashes Corporate ‘Animal Spirits’

- Shishir Sinha

India Inc rejoiced in festive celebrations on Friday, a month ahead of the upcoming Diwali season, with the government delivering a dramatic corporate tax break in the hope of unleashing the animal spirits of the economy.

Finance Minister Nirmala Sitharaman’s announcement of a lowering of corporate tax,effectively by 10 percentage points for existing companies and 12 points for new ones, represents the most sweeping reforms in years.

It brings corporate tax rates to levels that are fiercely competitive at a global level, and gives Prime Minister Narendra Modi enormous leverage as he gets set to travel to the US to invite investments.

The announcement came in the immediate wake of three rounds of policy tweaks in recent weeks, which had failed to inspire hopes of a reversal of the economic slowdown. But the mood turned upbeat on Friday, and key stock indices surged ahead (see accompanying story).

The tax cuts will likely result in a revenue loss of ₹1.45lakh crore a year, but the government expects a revival in consumer demand to make good some of that shortfall.

Eligible companies can adjust the benefit in the next instalment of advance tax, due on December 15.