After the proposal to cut corporate tax rate for domestic firms and new manufacturing concerns on Friday to boost growth and investments, India's fiscal deficit is likely to tread higher by at least 70 bps to 4% of GDP as against the 3.3% of GDP target announced in the Union Budget in July.
For domestic companies that do not avail of any tax incentive, the corporate tax rate has been brought down to 22%. So, effective corporate tax rate comes to be 25.17% that includes all cess and surcharges. New companies into the manufacturing space will have to shell out an even lower lower corporate tax rate of 15%.
The tax booster measure is estimated to result in a revenue loss of Rs. 1.45 lakh crore to the government on a yearly basis. During the full budget announcement in July this year, FM revised fiscal deficit target lower from 3.4% estimated during the interim budget to 3.3% of GDP. "We are conscious of the impact it will have on fiscal deficit," Sitharaman told reporters while announcing the tax measures.
The announcements come at a time when India logged a six-year low GDP of 5% in April-June quarter.
Lower tax mop-up, both indirect and direct tax, has been worrisome for the government given the fact that it already breached 77% of the full-year fiscal deficit target of 3.3% of GDP in July itself.