A day after the government announced a cut in corporate taxes, Niti Aayog vice-chairman Rajiv Kumar said the impact of the decision on the fiscal deficit would be a minor one as the shortfall incurred would be covered through increased tax collections.
Speaking at an event in New Delhi, Rajiv Kumar said, “I don’t think tax cuts will leave a gaping hole in the fiscal numbers. There will be some, which will be minor.”
On Friday, Union Finance Minister Nirmala Sitharaman announced cuts in tax rates for domestic companies to 22 per cent and for new domestic manufacturing companies to 15 per cent. The new tax rate will be applicable from April 1, involving a revenue loss of Rs 1.45 lakh crore this fiscal.
The Niti Aayog vice-chairman also claimed there was buoyancy in growth that in turn would have an impact on direct and indirect tax collections. “There is buoyancy in growth. In the past, our tax buoyancy has been very good. Therefore, both direct and indirect tax collections will go up with growth,” he said.
The new effective tax rate, inclusive of surcharge and cess, for domestic companies would be 25.17 per cent and for new domestic manufacturing companies would be 17.01 per cent. These rates would be applicable to companies that forego the current exemptions and incentives.
Kumar pointed out that another area for 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,” Rajiv Kumar said.
With the manufacturing sector dragging GDP growth to a six-year low of 5 per cent in the first quarter of the ongoing fiscal, Kumar said the numbers mark the bottoming out of the cycle. “We will achieve a nearly 6.5 per cent growth this year and we will be on track for doubling up our per capita income in the next five years,” he added.
(With PTI inputs)