Take the pledge to vote

For a better tommorow#AajSawaroApnaKal
  • I agree to receive emails from News18

  • I promise to vote in this year's elections no matter what the odds are.
  • Please check above checkbox.

    SUBMIT

Thank you for
taking the pledge

Vote responsibly as each vote counts
and makes a diffrence

Disclaimer:

Issued in public interest by HDFC Life. HDFC Life Insurance Company Limited (Formerly HDFC Standard Life Insurance Company Limited) (“HDFC Life”). CIN: L65110MH2000PLC128245, IRDAI Reg. No. 101 . The name/letters "HDFC" in the name/logo of the company belongs to Housing Development Finance Corporation Limited ("HDFC Limited") and is used by HDFC Life under an agreement entered into with HDFC Limited. ARN EU/04/19/13618
Associate PartnerAssociate Partner
LIVE TV DownloadNews18 App
News18 English
News18 » Business
3-min read

Corporate Tax Cuts May Bolster Growth Eventually; Fiscal Impact to Come Sooner: Fitch

FM Nirmala Sitharaman on September 20 announced the lowering of the base corporate tax rate to 22% from 30% for companies that do not seek exemptions and reduced the rate for some new manufacturing companies to 15% from 25%.

PTI

Updated:September 26, 2019, 5:28 PM IST
facebookTwitterskypewhatsapp
Corporate Tax Cuts May Bolster Growth Eventually; Fiscal Impact to Come Sooner: Fitch
Union Finance Minister Nirmala Sitharaman

New Delhi: Fitch Ratings on Thursday said the steep cut in tax paid by companies may stimulate investments and economic growth only in the medium term, but it will lead to breach fiscal targets in the current fiscal itself.

Finance Minister Nirmala Sitharaman on September 20 announced the lowering of the base corporate tax rate to 22 per cent from 30 per cent for companies that do not seek exemptions and reduced the rate for some new manufacturing companies to 15 per cent from 25 per cent. Including surcharges and cesses (levies to raise funds for specific purposes), the effective corporate tax rate will drop by nearly 10 percentage points to 25.2 per cent.

"India's corporate tax cuts support efforts to stimulate investment and GDP growth in the medium term, but will cause the fiscal deficit to widen in the near term.

"As such, slippage from previous government fiscal targets this year (FY19-20) is now very likely," Fitch said.

Sitharaman had in her maiden budget, presented on July 5, targeted a fiscal deficit of 3.3 per cent of the GDP.

The corporate tax cut follows other measures by the government to prop up slowing GDP growth adopted since the May general elections. These include efforts to reduce red tape and boost FDI, and plans to consolidate the state-owned banks.

"We would characterise these and the latest tax cuts as structural reforms to improve competitiveness and efficiency (for example, by reducing the use of tax exemptions) rather than as cyclical stimulus measures.

"As such, they may succeed in stimulating investment, although a positive growth impact is only likely over the medium-term, the agency said.

Fitch said a positive impact on FDI would be more likely if the tax cuts were accompanied by further measures to improve India's business environment.

"In particular, corporate tax rates are likely to be only one in a list of factors determining investment decisions, along with the legal environment, labour market regulations, infrastructure development and enhancements to the overall business climate," it said.

Faltering domestic demand, a weak global trade environment, asset-quality challenges at banks and funding pressure on non-banking finance companies have contributed to economic slowdown.

GDP growth slowed for a fifth consecutive quarter in April-June to 5 per cent, the slowest pace in six years.

The contribution of private consumption fell to 1.8 percentage points (pp) from an average of 4.6 pp in the preceding four quarters, while manufacturing grew by just 0.6 pp year-on-year.

Fitch said it will later this month release its revised growth estimate for 2019-20 fiscal year for India which "will be significantly lower than the 6.6 per cent" forecast in June.

"The policy measures taken will likely support a gradual recovery in FY20-21 and FY21-22," it added.

In contrast to the growth impact of tax cuts, the fiscal impact will be felt in this fiscal year, it said, adding the corporate tax reduction will cost around 0.7 per cent of GDP in lower revenue - about two-thirds to the central government and one-third for state governments.

Revenues this year are already behind target although the record annual transfer of USD 24.8 billion from the Reserve Bank of India, announced in August, should largely fill this gap.

"Expenditure postponements are more difficult for the government given weak growth, and we expect the central government to miss its 3.3 per cent of GDP deficit target for FY19-20 by about 0.4 pp. We now expect a general government deficit of 7.5 per cent of GDP, well above the 'BBB' category median of 1.9 per cent," it said.

The rating agency said the general government debt ceiling of 60 per cent of GDP is unlikely to be met by March 2025, as stipulated by the Fiscal Responsibility and Budget Management Act, as this would require significant deficit reduction.

"The interplay of growth and fiscal policy are an important element of our Indian sovereign rating assessment. Higher sustained investment and growth rates without the creation of macroeconomic imbalances could be positive for India's credit profile while a rise in the government debt burden could be negative," it added.

Get the best of News18 delivered to your inbox - subscribe to News18 Daybreak. Follow News18.com on Twitter, Instagram, Facebook, Telegram, TikTok and on YouTube, and stay in the know with what's happening in the world around you – in real time.

Read full article
Next Story
Next Story

Also Watch

facebookTwitterskypewhatsapp
Most Active
Company Price Change %Gain
Infosys 651.00 1.16
Yes Bank 53.25 2.80
RBL Bank 253.50 -11.66
Indiabulls Hsg 222.15 1.90
Axis Bank 721.90 1.28
Company Price Change %Gain
Infosys 650.75 1.16
Yes Bank 53.15 2.61
IRCTC 892.90 5.63
Indiabulls Hsg 222.85 2.13
Adani Ports 400.35 -4.87
Top Gainers
Company Price Change %Gain
Eicher Motors 20,656.85 3.39
Yes Bank 53.15 2.61
HCL Tech 1,091.20 2.51
Titan Company 1,362.00 2.45
SBI 275.85 1.98
Company Price Change %Gain
Yes Bank 53.15 2.61
HCL Tech 1,092.00 2.59
SBI 276.05 2.07
Hero Motocorp 2,711.00 1.41
Maruti Suzuki 7,365.45 1.53
Top Losers
Company Price Change %Gain
Adani Ports 400.15 -4.90
Zee Entertain 245.65 -1.92
Grasim 745.50 -1.40
HUL 2,104.10 -1.09
ONGC 143.10 -0.80
Company Price Change %Gain
HUL 2,105.75 -1.03
IndusInd Bank 1,334.50 -0.46
ONGC 143.15 -0.69
Larsen 1,435.00 -0.48
Reliance 1,409.40 -0.34

Live TV

Countdown To Elections Results
To Assembly Elections 2018 Results