India’s decision to cut corporate tax and Nepal’s decision to charge tax on manufacturing industries! Which direction are we heading towards?

Sun, Sep 29, 2019 8:33 AM on Exclusive, Latest, Stock Market,

India’s recent decision to cut taxes surged the stock market. Finance Minister Nirmala Sitharaman came up with the decision to bring down minimum corporate tax to 15%. This decision brought a lot of appreciation from experts and general public in India. However, the same decision has raised questions among Nepali general public – “What is our government doing?” Finance Minister Yuvaraj Khatiwada has been bringing in policies by levying higher tax rates on manufacturing industries.

However, Indian Government’s decision to reduce taxes has brought in a lot of speculations regarding the economy. If only Nepal’s government could have been liberal on taxes to manufacturing industry, a lot of economic reforms could have been expected. However, in light of India’s tax decision, let us see what experts are expecting out of India’s decision of tax reform.

The tax reform is likely to bring in a lot of new investments in India, including those that were likely to be taken away by China. The tax cut in the manufacturing industry will especially encourage new investment in India, making India the ultimate investment hub. A lot of times concerned authorities in Nepal have been skeptical citing that in the presence of such large investment hubs in neighboring country, Nepal will always face difficulties to attract new investments. However, India’s this decision has set examples among a lot of developing countries, including Nepal. A thoughtful notion of bringing in new investment through a careful declined tax rates can help to bring foreign investment.

Despite Prime Minister Narendra Modi’s consistent effort in the campaign Make in India, the economic growth statistics reflected a completely different picture. In this scenario, in order to reverse the trend, government immediately came up with the decision to cut taxes. Nepal has been facing decline in economic growth since a decade. On the contrary to reducing taxes, manufacturing companies are being charged heavy taxes every year a new government takes lead.

Due to the tax reforms, BSE 500 companies are expected to save around Rs 20,745 crores in tax on a quarterly basis. The extra cash saved by these companies can be expected to be distributed as dividend. This in turn will boost consumption. Such tax reforms are also a motivating factor to listed companies to compete and perform better in the segment of consumer goods. We often complain why big Nepali industries or big companies have not been able to maintain steady profit. When industrialists hold the perception that the major portion of their profits are taxed, the existing industry shouts down and the new comers are too scared to enter the market. Industrialists such as Binod Chaudhary have been constantly questioning government and finance minister about its efforts towards the upliftment of manufacturing and service industries. They often attribute the cause of fall down of manufacturing industries to lack of benefits and tax incentives. However, government has never really paid attention towards these concerns and has been bringing in new tactics to implement higher tax rates. India’s decision has been set as an example to Nepal in regards to the motivation that can be provided to encourage manufacturing sector to contribute to the economy.

 Finally, India’s stock market was recently predicted to take a bearish trend as a lot of investors predicted that the Indian stock market has gone its peak. However, post the announcement of tax cut, the market increased by 1921 points, the second biggest single day gain. This proves that a simple policy change can bring in optimism among the investors. It further proves the interconnection between investors’ expectation about the economy and the stock market performance. On the contrary, Nepal’s stock market has been in the bearish trend since a long period of time. Despite encouraging unlisted manufacturing companies to list in NEPSE, no such enthusiasm has been observed from the manufacturing industries. Moreover, Indian investors are expecting higher EPS and better bottom line performances from the companies. The Indian stock market is all energized and the market is predicted to rise till the year end.

India’s corporate tax cut decision has shown the alignment of action and vision among policy makers. However, the way Nepal’s concerned authorities have been claiming for a higher economic growth yet have been failing in terms of tax reforms, industrial reforms and entrepreneurial development shows that our vision and action do not move in the same direction.

What is your opinion on corporate tax cut of India? Do you think such policies in Nepal will help both the industrial economy and the stock market of the country? Let us know in the comment section below.