Stimulus Wakes Up Economy from Dormancy
If the Times of India’s Mumbai edition is a benchmark for the mood of the industry, then the announcements of September 20 have resulted in generating excitement and hope. The edition is full of advertisements yet again spurred by the upcoming festive season of Dussera and Diwali.
Less than 100 days after presenting her maiden Budget, Finance Minister Nirmala Sitharaman had announced cutting corporate tax rate to 25.17 per cent to bring them on par with that of other Asian countries such as China and South Korea. This will be effective on the condition that these companies will not avail of any other incentive or concession such as tax holiday enjoyed by units in SEZ, and accelerated depreciation.
The effective tax rate for existing units, after considering surcharges and cess such as Swachh Bharat cess and education cess – which are levied on top of the income and corporate tax rates – will be 25.17 per cent as compared to 34.94 per cent now. For new units it will be 17.01 per cent as opposed to 29.12 per cent now.
“It will give a great stimulus to #MakeInIndia, attract private investment from across the globe, improve competitiveness of our private sector, create more jobs and result in a win-win for 130 crore Indians,” tweeted PM Narendra Modi.
However, the present economic slowdown is mainly due to weak consumer demand. Hence, there is no reason to imagine that private businesses will invest more just because their tax outflow has reduced. A more pragmatic solution should have been to increase household incomes by reducing the personal income tax rate. There are strong rumours that this is being actively considered.
For a State like Kerala which is a major player in tourism, the slashing of GST rate on hotel rooms has come as a huge relief. However, industry veterans have a word of caution – hotel rooms in India continue to be non-competitive in terms of taxation when compared to SEA neighbours who levy 6-7 per cent only. Categorizing a Rs. 7500 per night room as “luxury” is ludicrous. Either reimbursing GST (like VAT reimbursement in European countries) or removing it completely for tourism services offered to foreign travellers (after all it is ‘export’) will be the real game changer, according to them.
Another major announcement has been the government’s decision to expand scope of CSR spending to boost R&D in India. The mandatory two per cent CSR spending base has been widened to include incubators and accelerators. This is expected to bring stronger connect between startups and industry. According to reports, there are 32 incubators and 4 accelerators in Kerala.
Delighted to see on the cover the Aswani family, an inspiring story of great resilience, forward thinking entrepreneurship and sound family values.