₹1.45L-cr corporate tax cuts finalised by govt in 36 hours

They are intended to stoke economic growth that decelerated to 5% in the quarter ended June, the slowest pace in more than six years.

Although the political decision at the top was quick in coming, the background against which it was taken had been prepared well in advance; the proposal was kept under the wraps for weeks within the top echelons of the government, the people cited above said.

The government is conscious of the steep cost of the tax reductions. But it is confident of making it up through more efficient revenue collection as well as by plugging leakages in expenditure, the people said.

They hinted that the fiscal deficit could be readjusted, but it would remain around the budgeted target of 3.3% of the gross domestic product and certainly not near 4%. “The government is willing to adjust the numbers, but one should not underestimate this government’s capability to undertake efficiency measures on expenditure side. People know how this government used Aadhaar to check any revenue leakages in flagship schemes such as MGNREGA. The government will control wasteful expenditure and enforce compliance to collect revenues,” the person quoted above said.

Revenue secretary Ajay Bhushan Pandey, the top civil servant behind the implementation of the decision, declined to give details of the decision-making process, but focused on the ideas that went into the move.

He said a country of 1.3 billion people cannot afford to ignore manufacturing and rely on imports to meet its needs. “High corporate tax structure in India had dissuaded both foreign and domestic investments. Even Indian investors would have preferred investing in neighbouring and other countries where tax rates would have been competitive,” Pandey said. “And other countries were gaining at the cost of India. This situation could not be allowed to continue. The government had the will to address these issues at the right time.”

Pandey said Friday’s decision was one of the biggest tax reforms ever undertaken by India — one that would not only encourage new investments by domestic as well as foreign investors but also motivate them to reinvest their profits.