Q. Recently, government of India announced the tax cuts for Corporations. What would be the likely impact on economy due to tax cuts?
1. It will raise the animal spirits of investors.
2. It will put more money on the hands of private sector.
3. It will raise the exports.
Which of the statements given above is/are correct?

[A] 1, 2 and 3

[B] 1 and 2 only

[C] 3 only

[D] 2 and 3 only

Answer: A

Finance Minister Nirmala Sitharaman announced a significant cut in corporate tax rates, thus bringing down the effective tax rate (including various cesses and surcharges) on corporations from 35% to 25%.

· Also under the new corporate tax policy, new companies that set up manufacturing facilities in India starting in October and commence production before the end of March, 2023 will be taxed at an effective rate of 17%.

· Following the government’s decision, both the NIFTY and the SENSEX rose over 5%, which is their biggest one-day rise in a decade.

· Tax cuts, by putting more money in the hands of the private sector, can offer people more incentive to produce and contribute to the economy. Thus the present tax cut can help the wider economy grow.

· The corporate tax rate, it is worth noting, is also a major determinant of how investors allocate capital across various economies.

· So there is constant pressure on governments across the world to offer the lowest tax rates in order to attract investors.

· The present cut in taxes can make India more competitive on the global stage by making Indian corporate tax rates comparable to that of rates in East Asia.

· The tax cut, however, is expected to cause a yearly revenue loss of ₹1.45 lakh crore to the government which is struggling to meet its fiscal deficit target.

· At the same time, if it manages to sufficiently revive the economy, the present tax cut can help boost tax collections and compensate for the loss of revenue.

Source: The Hindu