Corporate tax cuts aimed at stimulating growth often entail substantial fiscal trade-offs. Examine the rationale behind recent corporate tax reductions. Assess their impact on public revenue mobilisation.

Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment

Q5. Corporate tax cuts aimed at stimulating growth often entail substantial fiscal trade-offs. Examine the rationale behind recent corporate tax reductions. Assess their impact on public revenue mobilisation. (10 M)

Difficulty Level: Medium

Reference: TH

Why the question:
The government is estimated to have forgone around ₹99,000 crore in revenue in the 2023-24 fiscal on account of tax incentives extended to corporates,

Key Demand of the question:
The question demands an examination of the logic behind India’s recent corporate tax reductions and an assessment of how these have impacted public revenue mobilisation.

Structure of the Answer:
Introduction:
Briefly state the policy trend of corporate tax rationalisation since 2016 and its intended objectives like investment and competitiveness.

Body:

• Rationale: Mention goals like boosting investment, simplifying tax regime, supporting MSMEs, enhancing competitiveness.
• Revenue impact: Mention scale of revenue loss, fiscal constraints, uneven distribution of benefits, and impact on state finances.

Conclusion:
Suggest a balanced, evidence-based approach to corporate taxation that safeguards fiscal space without compromising investment goals.