Budget 2025: Global economic shifts make tax cuts unlikely, but reforms must continue

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Subscribe to enjoy similar stories. As the world economy continues to work through the challenges of weak growth, likely inflation and political actions shifting economic relations, there is continued interest in whether tax policy can make a difference. The new administration is considering extending the tax cuts and Jobs Act in the US while mulling tariffs on products from India and China.

If the US implements these measures, India may find itself at the receiving end as foreign investments and bilateral trade recede to an extent. The sell-off by foreign investors in the Indian equity market is a prologue to what lies ahead. At the domestic level, there are concerns that the economy may not fare as expected, with a growth target set at 6.6% for the financial year 2025.

In the past year, corporate investment has not picked up as swiftly as the profits and much of it has to do with the trends in consumption where urban demand remains lacklustre. Yet, the growth in goods and services tax collections is robust and personal income taxes have grown faster than corporate tax collections. This reflects the changing patterns of tax incidence.

Within this context, there are expectations from Union Budget 2025. There is the usual call for lower income taxes to ease the burden of the rising cost of living and meet the global challenges mentioned earlier while bolstering domestic private investment. However, how probable are rate cuts in the given circumstances? Experience bears that tax cuts are transitory strategies.