Corporate Tax Cut To Have ‘Minor’ Impact On Fiscal Deficit: NITI Aayog
Indian two thousand and five hundred rupee banknotes are arranged for a photograph in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Corporate Tax Cut To Have ‘Minor’ Impact On Fiscal Deficit: NITI Aayog

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The Rs 1.45-lakh crore tax giveaway is unlikely to widen fiscal deficit much as the shortfall will be met through increased tax collections due to higher growth which the massive tax cuts are expected to achieve, NITI Aayog Vice Chairman Rajiv Kumar said on Saturday.

On Friday, the government had announced tax cuts for corporates by 10-12 percentage points, bringing down the effective corporate tax to 25.17 percent inclusive of all cess and surcharges for domestic companies.

The new tax rate will be applicable from April 1, involving a revenue loss of Rs 1.45 lakh crore this fiscal. "I don't think tax cuts will leave a gaping hole in the fiscal numbers. There will be some, which will be minor," Kumar said at an event in Mumbai.

Budget had estimated fiscal deficit at 3.3 percent of the gross domestic product for the current fiscal but many analysts have pegged it overshooting by at least 70 basis points to 4.1 percent as the quantum of the giveaways is worth 0.7 percent of the GDP.

Also read: Corporate Tax Cuts The ‘Start’ Of Meaningful Reforms, Says Credit Suisse’s Neelkanth Mishra

Significantly, it can be noted that neither the finance minister or her senior cabinet colleagues who talked to the media after the announcement took questions on the shape of fiscal deficit numbers post the tax cuts.

Even, Reserve Bank Governor Shaktikanta Das had lapped it up as growth boosting just a day before warning the government that it has no leeway to undertake any fiscally expansionary measures.

It can be noted that while the Goods and Services Tax collection has been ebbing below the desired Rs 1 lakh crore mark all through the year expect one month, the direct tax mop-up for the first half lagged way behind the target. It grew a paltry 4.7 percent in the first half of this fiscal at Rs 5.5 lakh crore against a budgeted target of 17.5 percent growth in collections for the full year.

Also read: Moody’s Says Corporate Tax Cut To Boost Net Income Of Companies

Kumar said direct and indirect tax revenues are expected to go up with growth picking up after these tax cuts.

"There is buoyancy in growth. In the past, our tax buoyancy has been very good. Therefore, both direct and in direct tax collections will go up with growth," he said.

Kumar said another area for his optimism is the government focus on divestment which he budgeted at Rs 1.05 lakh crore.

"Asset sales will yield an additional Rs 52,000 crore over the budget estimate. Then you have got another Rs 50,000 crore from the RBI which was not included in the Budget," he said.

The higher revenue from tax and non-tax fronts will help the government finance the fiscal deficit, he added.

Kumar said the 5 percent GDP growth is not yet a crisis and the first quarter number marks the bottoming out of the cycle.

"We will achieve a nearly 6.5 percent growth this year and we will be on track for doubling up our per capita income in the next five years," he added.

Also read: Corporate Tax Cut: Bye, Bye Exemptions, Hello Lower Tax Rates - The Fineprint

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