2025, Vol. 6, Issue 2, Part B

Corporate tax policy significantly influences the strategic decisions of businesses, particularly in determining levels of capital investment, expansion plans, and long-term financial planning. Recognizing this, the Government of India has introduced a series of structural corporate tax reforms in recent years, with the most notable being the Taxation Laws (Amendment) Ordinance, 2019. This reform reduced the base corporate tax rate to 22% for existing domestic companies and introduced a preferential rate of 15% for new manufacturing firms. These measures aimed to stimulate domestic investment, enhance India’s global tax competitiveness, improve ease of doing business, and attract greater Foreign Direct Investment (FDI). This article critically examines the effectiveness and implications of these corporate tax reforms on the investment behavior of businesses operating in India. Using a combination of secondary data analysis, government reports, and sectoral case studies, the research investigates whether the post-reform period witnessed a tangible shift in corporate investment patterns. The study also analyzes how different sectors particularly manufacturing, information technology, and MSMEs have responded to the new tax regime.
Findings suggest that while the tax reforms have undoubtedly improved post-tax profitability, their impact on actual capital expenditure and new investment has been more muted and uneven across sectors. Large corporations have, in many cases, utilized tax savings to deleverage debt or return value to shareholders, rather than initiate fresh investments especially during periods of macroeconomic uncertainty and weak demand. Moreover, structural challenges such as infrastructure deficits, regulatory compliance, credit constraints for MSMEs, and global economic headwinds have moderated the potential gains expected from tax rate reductions. The article concludes that corporate tax reform, though a necessary and welcome step, is not a standalone catalyst for boosting investment. Its effectiveness is largely contingent upon a stable policy environment and the simultaneous implementation of complementary reforms in areas like infrastructure development, credit flow, and labor market flexibility. This study underscores the need for a holistic policy approach to make India’s corporate tax regime a true enabler of investment-driven growth.