Tax cuts will hit states’ finances: TM Thomas

Kochi: Finance minister T.M. Thomas has said the central government’s bonanza of Rs 1.45 lakh crore to the corporate sector in the form of tax cuts will adversely impact the state’s finances. “As per the 14th finance commission award, the Centre has to share as much as 42 per cent of the direct tax collection, which includes corporate tax, with the states,” he told Deccan Chronicle on Saturday. “With this decision to slash corporate income tax rates, the allocation of funds to the states will come down.”

While the Centre and the states will now find it difficult to meet their commitments to welfare programmes, the same beneficiary corporates will be able to lay their hands on more public assets, he said. “The government has weakened its own finances and the ability to manoeuvre by the largesse,” Dr Isaac said.

“The government will have to meet its fiscal deficit targets to please the finance capital. To do the same, it will have to aggressively sell public sector companies. The same corporates, who will have deeper pockets now, will be the buyers.” It’s nothing but part of a plan to handover more of public assets to the private companies, the finance minister said.

If the government was really keen to revive demand and energise the economy, it could have cut down on GST which would have been mandatorily passed on to the consumers, Dr Isaac said. “Cut in corporate taxes does not make it obligatory on the part of the companies to reinvest,” he said.  

The minister said the centre’s move looked more like a public relations stunt for Prime Minister Narendra Modi’s visit to the US. “They want to showcase an upbeat stock market to the US while Mr Modi is on a visit there,” Dr Isaac said. “And they have been successful in that. There is little for the economy in it.”