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Indian Think Tank Backs 10% Corporate Tax Cut

Lisa Ugur, Tax-news.com, London

20 February 2001

A leading Indian economic think tank, National Council for Applied Economic Research (NCAER), has called for a cut in the country's corporate tax rate, saying that a 10 per cent cut would boost Gross Domestic Product (GDP) growth and reduce the fiscal deficit by 1.5 per cent.

In its "Review of the Economy", the NCAER said: 'For a reduction of tax rate by 10 per cent and investment of this tax relief, the real GDP would increase by 0.36 per cent. Inflation rate would be greater by 0.19 percentage points but fiscal deficit of the central government would decline by 1.5 percentage points.'

The report stated: 'With depressed investment climate and reduced profit margins in the wake of higher energy related costs, the tax relief would provide a stimulus to new investments.' The NCAER said that the proposed tax rate cut would have a positive impact and increase investment considerably: 'When the investment is financed by domestic savings, the impact on growth is higher than when investment originates from foreign sources,' it said.

The NCAER has called on the central government to address in its budget for 2001-2002 the issue of providing an environment that is conducive to new investments that can sustain growth.

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