Corporate Taxation And Industrial Growth

Taxation is a major instrument of social and economic policy. The old-fashioned fiscal theory of taxation, aiming mostly at providing large revenue to the state has since long been thrown into the limbo of exploded fallacis and governments in most developing nations have now come to realise the significance of functional finance as an important part of shaping their fiscal objectives. Corporation tax, as an important ingredient of the fiscal system, has three-fold role to play: to transfer resources from the private to the public sector; to bring about equality in the income and wealth distribution; and to promote economic growth, stability and efficiency. From these angles, the corporation tax structure in our country is both a source of satisfaction and at the same time an object of criticism-a source of satisfaction because if does not seem to have produced impending effects on economic growth and an produced impeding effects on economic growth and an object of criticism because many still believe that the Corporation tax rates in India are the highest in the world. It is widely believed that corporation tax can influence the peace of industrial growth as indeed all economic growth. A close co-relation thus exists between corporation tax and industrial growth in that a growth-oriented tax system would reward efficient enterprise by leaving ample internal resources for financing expansion while a restrictive tax policy, on the contrary, would denude industry of valuable funds, sap confidence in the Industrial outlook and even defeat the government?s efforts to get sufficient revenue. The present volume aims at examining empirically the relationship between corporate taxation and industrial growth. Based on the data of some corporate enterprises and using various statistical techniques, it reveals that the corporate taxation has not impeded the tempo of industrial growth. The nominal tax rates in India may be the highest in the world but the effective tax rate are substantially low, in fact some companies do not pay tax at all, though they earn substantial profits.