Are low taxes the answer?

Dalal Street has given a big thumbs up to the tax cut. But, corporate investments are another matter


It was a blockbuster Friday on September 20 for the stock market when the finance minister gave it an early Diwali bonus. The Sensex saw its biggest gain in a decade, rising 1,921 points to close at 38,015. Investors and India Inc celebrated the reduction in effective corporate tax rate from 34.94% to 25.17%, which includes all cess and surcharges for domestic companies. That translates to 14-15% boost to post-tax corporate earnings.

“This is a once in 15-20 years kind of reform and will bring in a significant mindset change, right from the corporates to the investors,” says Samir Arora, founder, Helios Capital. The street was on steroids after the announcement, since this move will lead to higher retained earnings and, thus, a higher corpus for future investments or payouts to shareholders. But, it’s important to remember that the move comes at a time when the economy posted its lowest growth rate of 5% in six years in Q1F


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