Budget 2020: Will impact of corporate tax cuts start showing in the coming few quarters? FE Survey

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Updated: January 30, 2020 6:14 PM

Budget 2020-21: While Finance Minister Nirmala Sitharaman last year announced hefty cuts in corporate tax rates to spur private investment and boost animal spirits, most experts believe that it will start bearing fruit as soon as in the coming few quarters.

Union Budget 2020: Three economists also expressed reservations about the immediate effect of corporate tax rate cuts.

Union Budget India 2020: While Finance Minister Nirmala Sitharaman last year announced hefty cuts in corporate tax rates to spur private investment and boost animal spirits, most experts believe that it will start bearing fruit as soon as in the coming few quarters. The booster shot for companies will have a positive impact on the economy and companies soon, according to eight out of 13 economists and policy analysts that Financial Express Online spoke to for a pre-Budget poll.

“Corporate tax rate cuts, along with a few announcements like abolition of Dividend Distribution Tax etc, if announced in the Budget, would provide impetus to India Inc, and we should see its benefits in the near future,” Vikas Vasal, National Leader – Tax, Grant Thornton India, said in response to the query. Analysts and economists from Arihant Capital, DBS, Dun & Bradstreet, Yes Bank, and another large private bank also said that the effects of corporate tax rate cuts will soon start to show. “Tax saved by the corporates will be reinvested subject to demand being revived and the current budget will focus on demand as its priority,” an official with a large private financier told Financial Express Online.

However, three economists also expressed reservations about the immediate effect of corporate tax rate cuts. “The impact will start showing in the coming few years (instead of quarters),” D K Srivastava, Chief Policy Advisor, EY, said. In the same vein, Sachchidanand Shukla, Chief Economist, Mahindra Group, said that the effects will be visible “not in the coming quarters immediately, but in the second half of FY21,” he said. Ranen Banerjee, Leader Economic Advisory Services, PwC India, echoed similar thoughts. “It will not be before the Q4 of FY 20-21 that we may see some impact or it may even be in FY 21-22,” he said.

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A lone respondent said that the government needs to address other issues before it can start seeing the results of corporate tax cuts. “There is lack of demand in the economy, and hence lack of investment. So the government needs to address the demand side issues first,” Indranil Pan, Group Economist, IDFC FIRST Bank, said. Another respondent also said that he can’t comment since there is a “Limited manner in some companies/sectors where opportunities are there,” Madan Sabnavis, Chief Economist, CARE Ratings Ltd said.

The corporate tax cuts announcement came at a time when the country was witnessing severe pressure from falling private investments, and was also reeling under a slowdown. The corporate tax rate cut announcement had immediate effect on the stock markets, with equity benchmarks seeing an upsurge.

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