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 :
·
SolarPower at Rs 1 per Kwh ? ( 29 Jan
2017 )
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·
OneUp on Donald Trump ? ( 16 Dec
2016 )
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·
Automationis Inescapable ( 30
Nov 2016 )
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·
Howto break the Vicious Circle ? (
03 July 2016 )
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·
Level Playing Field ? (
11 June 2016 )
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·
BackFactory 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
www.hemenparekh.in / blogs
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