Sunday, 30 April 2017

Everything Else being Equal


WHAT  ?


·         Last week , Donald Trump reduced Corporate Income Tax from 35 % to 15 % for American companies


·         Earlier , UK had announced reduction in Corporate Tax from 30 % to 20 % . Several EU countries are planning similar reductions


·         Closer at home , in his last budget , Shri Arun Jaitleyji had reduced Corporate Tax from 30 % to 25 % , for companies with annual revenues of less than Rs 50 crore


·         News reports say that the Finance Ministry is considering to extend this benefit to companies with revenues of less than Rs 500 crores , in the forthcoming budget



There is sufficient evidence to show that :


·         Lower tax rates lead to better tax compliance and higher , overall tax collections


·         Lower tax rates also result in expanding the tax-base ( of tax payers )



This phenomenon assumes significance in view of the following declaration by Shri Hasmukh Adhia , Union revenue Secretary , last Saturday :


“ Close to 9 lakh registered companies have not been filing annual returns with the Ministry of Corporate Affairs ( MCA ) and are a potential source of money laundering



Focus should be now on technology . There should be no need to call anybody a thief. The machine should itself catch the thieves “




WHY  ?


·         To attract investment ( both local as well as Foreign ) in  Mfg / Services / Infrastructure ( by enabling companies to plough back increased profits )


·         To generate jobs for millions of unemployed youth


·         To prevent companies from going abroad to make more profits in countries where tax rates are lower


·         To make companies globally competitive


·         To increase share of international trade by increasing exports



WISHFUL  THINKING  ?



Not entirely  !


But , by itself , lowering of Corporate tax is not a “ sufficient “ condition for achieving the five “ Objectives “ listed above


For sure , no company hires more number of people than it needs , just because it can now “ afford “ ( due to bigger profits ) !


If we are smarter than those other countries , we should link lower Corporate Tax liability with each “ ADDITIONAL UNIT OF NEW JOB CREATION “ , as explained in :



Incentivizing  Employment  ?  ( 24  Aug  2016  )





NEXT :


By “ Globally Competitive “ , I suppose , Economists ( - and Politicians ?  ), mean :



Creating a LOW COST ECONOMY



That is not going to happen just because of  “ LOW CORPORATE TAX “ !


It will happen only when we implement measures to facilitate  “  LOW INPUT COSTS  “


Inputs of all kinds as explained in :


·         Solar Power at Rs 1 per Kwh ?  ( 29  Jan  2017  )



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·         One Up on Donald Trump ?  ( 16  Dec  2016  )



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·         Automation is Inescapable   ( 30  Nov  2016  )



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·         How to break the Vicious  Circle  ?   (  03  July  2016  )



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·         Level  Playing  Field  ?   (  11  June  2016  )



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·         Back Factory of the World  ?   ( 09  Sept  2016  )



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·         Create  Wealth  to  Create  Jobs   (  26  Feb  2014  )


If there is a political will , India can beat the menace of “ Anti-Globalization / De-Globalization “ , by turning itself into a LOW  COST  ECONOMY


By itself , reducing Corporate Tax will not take us very far  !



   
01 May  2017




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