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NO CUT ON SPENDING

Finance minister Nirmala Sitharaman has ruled out any cutback in expenditure, allaying apprehensions sparked by hefty corporate tax rate cuts, and said the government would instead push spending as the country looks to stave off the economic slowdown that pulled down growth in the first quarter of this financial year to a six-year low.

“We want ministries to spend… Expenditure secretary is meeting secretaries from other departments every week to push spending by departments and PSUs (public sector undertakings),” Sitharaman told media persons on Sunday, stressing that the government is not considering any reduction in spending.

With this rate cut, the direction has been set for direct taxes and it would be difficult to raise corporate tax rates from here, said the minister. Anyone who wants to do so would have to go to Parliament and explain the rationale for raising tax, she added.

The comments came two days after Sitharaman slashed base corporate tax rate to 22% from 30% for domestic companies and proposed a competitive 15% rate for new manufacturing units, offering a Rs 1.45 lakh crore fiscal boost as part of a series of measures to revive growth. The unexpected move had led to speculation that the government might resort to spending cuts to meet its budgeted fiscal deficit target of 3.3% of GDP for 2019-20.

The minister said on Sunday she will take stock of the fiscal situation during the exercise on revised estimates.

The minister said the government will continue to focus on disinvestment as planned, pointing out that 23 companies had been approved by the Cabinet Committee on Economic Affairs (CCEA).

Responding to a query on the proposed disinvestment of national carrier Air India, she expressed hope that it would be completed in the current fiscal. “The AISM (Air India Specific Alternative Mechanism) is likely to meet soon to finalise the contours,” Sitharaman said.

She said industry representatives had raised the issue of “reforms” in multiple interactions with her. Terming the corporate tax rate cut an “equivalent of surgical strike”, she said the government had taken a conscious call to keep the effective corporate tax rate below 25%. “High tax rates were one of the key impediments cited by foreign investors… With this cut, we have ticked all boxes for them,” she said. Further, the minister said, no country in Southeast Asia is offering a 15% tax rate (which is now applicable to new manufacturing units).

Asked about a reduction in personal income tax rates as demanded by many, the minister said the government has not yet thought of rate rationalisation. She said a detailed analysis of the Direct Tax Code task force report was on and that it had made very good recommendations for simplification and rationalisation of the tax structure.

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