Discuss the options explored by the government to recoup loss from the proposed corporate tax cuts

Published: September 26, 2019

The reduction in corporate tax rates proposed by the Ministry of Finance is set to cost Rs 1.45 lakh crore annually. In order to compensate for revenue loss due to the proposed corporate tax rate cuts, the Ministry of Finance is working on a three-pronged strategy:

  • Fast-Track Monetisation of idle state-owned land.
  • Strategic stake sale in key companies, and
  • Sale of residual stake in other state-run firms.

Fast-Track Monetisation of idle state-owned land

  • The government aims to partially compensate lower tax collections through land monetisation.
  • Government is planning to monetize assets such as unused land and residential properties held by these companies, closed industrial units and plants of nearly three dozen public sector enterprises in various sectors including power, textiles and fertilizers are among assets to be considered for sale.
  • The government is planning to adopt different models for land monetisation, including securitising a pool of assets through structures like REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts).
  • The government is planning to get successful bidders to make a large upfront payment for the assets combined with annual payments, or small or zero upfront payment with annual payments.

Strategic stake sale in key companies

  • The companies identified for strategic stake sale include BPCL, Container Corporation of India (CONCOR) and Air India.
  • The government currently holds 53.29 per cent stake in BPCL with a current market capitalisation of Rs 100,816 crore and holds 54.8 per cent in CONCOR with a market capitalisation of Rs 36,536 crore. A complete sale of government holding in BPCL and CONCOR alone can fetch the government Rs 73,745 crore.
  • The department of disinvestments has already initiated the process of inviting interest for Air India.
  • The government in consultation with NITI Aayog has prepared a list of 29 companies that will be put up for strategic sale to private companies.

Sale of residual stake in other state-run firms

  • The Finance Ministry is coming out with initial public offers for three companies: FCI Aravali Gypsum and Minerals India Ltd, Telecommunications Consultants India Ltd, and WAPCOS Ltd.

Residual stake sales, buybacks, strategic sales, land monetisation and complete exit from some of the companies will help the government raise more resources. This would aid in keeping the fiscal deficit target of 3.3 per cent of GDP by March 2020.

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