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Corporate Tax Cut is a Signal to Structural Reforms, Says CEA

Over a long-term horizon, the move to massively cut the corporate taxes by 10 percentage points to 25.17 per cent will push up capex, India Ratings and Research said.


Updated:October 2, 2019, 5:34 PM IST
Corporate Tax Cut is a Signal to Structural Reforms, Says CEA
File photo of Chief Economic Adviser KV Subramanian (PTI)

Hyderabad: Describing the recent corporate tax cut as a signal to structural reforms, Chief Economic Advisor KV Subramanian on Wednesday said the government needs to focus on non-tax revenues to offset the revenue deficit if any.

He maintained that the fall in GST collections was expected as the nominal growth has declined.

"From 2004 to 2014 we did not implement any structural reforms. During 2014 to 2019 we have implemented a couple of them like Bankruptcy Code and GST. So I would say that this is the time where we need to focus on implementing structural reforms," he told PTI on the sidelines of a programme.

"The (corporate) tax rate cut is a historic change which clearly signals the intent of the government to implement the structural reforms that are necessary for high growth rate," he added.

On September 20, Finance Minister Nirmala Sitharaman announced a reduction in the base corporate tax rate to 22 percent from 30 percent as part of stimulus measures to revive the slowing economic growth.

According to him, the government is taking steps to ensure that the country grows at high growth rates of close to 8 per cent so that the goal of becoming a top economy in the world is achieved.

On the sluggishness in the GST collections, he said the tax collection varies with the nominal rate of GDP in the economy and there has been some slowdown in it.

"The decline in tax collection is something that is expected. I would not read anything more into it because as the nominal growth has declined a little bit, tax collections would go down. If it did not happen then, it would be something unexpected," the CEA said.

The Goods and Services Tax (GST) collections dropped sharply to a 19-month low of Rs 91,916 crore in September, mirroring a widening slowdown in economy triggered by shrinking consumer demand.

"The emphasis will be on ensuring that the non-tax revenue covers up for the sum of these aspects (revenue deficit out of various sops announced by the Centre)," he added.

Earlier addressing the gathering at programme organised by "Manthan", a forum for public discourse, he said in order to achieve the goal of USD five trillion economy the country needs to focus on investments, as it is the key driver of economic development in an economy like India where "consumption is a force multiplier."

He also suggested there is need to reduce labour law restrictions to create more jobs and productivity and increase number of judges at various levels for faster clearance of pending cases.

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