Tax Booster and Turmoil in the financial sector
Tax Booster and Turmoil in the financial sector
Honourable Finance Minister’s series of announcements of restructuring the corporate tax to 22 per cent without exemptions (Effective rate after surcharge being 25.17 per cent), reduction of Minimum alternate tax (MAT) from 18.5 per cent ,rate of tax for new domestic companies to 15 per cent (with no MAT), , removal of enhanced surcharge on FPIs and as well as buyback tax resulted a temporary surge in the indices. Government’s effort that caters to the supply-side of operations did create positive vibes but demand creation is still a concern. Private consumption contributes more than half to India’s GDP. With the meagre rains in last few years and adding to that the reduction of food prices, has resulted in downward trend in rural consumption. The reduced income growth of households has reduced urban consumption.
Expectations are that the big companies will be having surplus funds to invest and pass on some of the benefits to the consumer. Apparently if we evaluate the action and effect this tax structure could incentivize investments by the private players in the time to come but short term impact will not be visible. Even if such move provide impetus to the economy nagging worry is GST collection which clocked around 91,000 crores in the last month. Government claimed that with this act foregone revenue for reduction on corporate tax and other measures would be around Rs 1.45 lakh crore per year. Will this harm the fiscal deficit remains to be seen.
Financial sector is coming up with sequels of shockers ever since PNB scam followed by ILFS saga. It is apparent that the lenders would have to take a major haircut. If big players were playing the faulty tune cooperative sector joined them too. Not as chorus but as major participants. The shock wave created by Punjab and Maharashtra Cooperative Bank has resulted in skepticism in the minds of every individual about all the existing cooperative banks. It is revealed that PMC bank didn’t classify the loans given to real estate developer HDIL(Housing Development and Infrastructure Limited. Common man is questioning the role of promoters, auditors and the regulators. Many directors of PMC bank and HDIL are now being interrogated. Answer to a question whether the words of RBI Governor “RBI will not allow any co-operative bank to collapse,” will give any solace to the depositors of the bank is simply NO. Another positive statement by the Governor Das was that “Country’s banking sector is sound and stable and there is no reason for any panic. Maintaining that cooperative banks are also sound”
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With command over then inflation in last four bi-monthly policy decisions, the central bank has reduced the repo rate by 110 basis points. Government in tune with some of the banks has already introduced Repo-rate linked loans thus making cheaper loans available. In every forum it is contemplated that we are in situation like 2008.
Savings by households has gone halved in last six years and has come down to 17 per cent of GDP in the year 2018. These net savers contribute a lot towards investment. With dwindling saving rates investments are drying up. With plenty of restructuring in GST one important item which can give fillip to demand and consumption is always overlooked i.e. rationalisation of GST on services. Erstwhile service tax which was 10 per cent a decade back has almost doubled since the introduction of GST. Until July 2012 service tax was charged on selective services this was changed to ‘Negative List regime’. Ever since service tax is being levied on the every service. This has made major impact on the expenditure pattern of rural as well as urban tax consumers. Acceleration in demand in rural as well as urban sector is a tall order. Expectations now shift to reduction and rationalisation of tax on individuals. Closure look in to India’s economy and an ear to the market buzz indicate that the vital vehicle of the economy the SME sector suffers the most. An emotional hand holding leading to availability of funds in the hands of many than a cold help can turn this around.
- UDAY TARDALKAR
CORPORATE CONSULTANT AND TRAINER - Pc:google