Corporate tax rate cut may not help much to boost economy; Macquarie tells what govt could have done

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Published: September 23, 2019 12:17:21 PM

Even as the government cut the corporate tax rates to boost the economy, a global investment bank said that the reform may not help much to beat the ongoing slowdown.

It does seem that India’s government yield of 6-6.5% could continue to draw investment interest, despite the fumbling economy and nervous rupeeThe economic growth has fallen to a six-year low of 5 per cent in the June quarter of fiscal year 2020.

Even as the government cut the corporate tax rates to boost the economy, a global investment bank said that the reform may not help much to beat the ongoing slowdown. The government should have instead slashed the income taxes and goods and services tax (GST) to revive the slowing growth, Viktor Shvets, head of Asian strategy at Macquarie Commodities and Global Markets, told CNBC TV18. The regulatory clarity and corruption are more important variables compared and there is ample evidence to show the tax rate cuts don’t help much, he added. However, tax rate cuts would certainly help the Indian economy to prevent another cycle of earnings downgrades since it has recorded 8 to 9 years of the same, he also said. The rate cuts could also stabilise the PE multiples, he noted. Now, India would be able to defend its PE estimates and earnings growth, he noted.

Earlier today, Ridham Desai, MD, Morgan Stanley India told CNBC TV18 that the government’s tax cut move is a permanent relief which will alter the cash flows in the economy. Finance Minister Nirmala Sitharaman on Friday announced a cut in corporate income tax rate with an aim to revive the slowing economy and attract investment. The basic corporate tax rate was cut to 22 per cent from 30 per cent while for new manufacturing companies was slashed to 15 per cent from 25 per cent.

Also read: High aspirations: Indians splurge to drive up consumer borrowings

The economic growth has fallen to a six-year low of 5 per cent in the June quarter of fiscal year 2020. The government has announced a slew of economic measures in the past few weeks to boost the economy. The revenue foregone for the reduction in corporate tax rate and other relief measures announced will cost the government Rs 1.45 lakh crore per year.

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