In what is arguably one of the boldest reforms in the last 20 years, finance minister Nirmala Sitharaman has cut the effective tax rate on corporate profits from approximately 35% to 25.2% for existing domestic companies and 17% for new manufacturing companies established before October 31, 2023, provided the companies take no exemptions. For existing companies, the tax rate is now below or equal to those in Japan, South Korea, China, Indonesia and Bangladesh though higher than those in Taiwan, Thailand, Vietnam and Singapore. For new manufacturing companies, the tax rate equals that in Singapore but is below those in all other countries just named.By putting an end to exemptions, the government has greatly simplified the corporate profit tax system and thus eliminated numerous sources of bribes, harassment and tax disputes. Provided the government does not let exemptions slip back into the system, it would have limited future tax disputes to reporting of revenues and costs. Tax inspectors will no longer be able to harass enterprises and extract bribes from them by questioning the exemptions sought by them.There is a strong case for a similar reform of personal income tax. Far too many exemptions, which erode the tax base, have led the government to increase the top effective marginal tax rate to 43%. High rates with loopholes embedded in exemptions invite corruption and harassment. Aligning the top personal income tax rate to the corporate profit tax rate at 25%, with all exemptions eliminated, would curb corruption and minimise tax disputes.If the government credibly assures taxpayers that higher declared incomes on future tax returns will not form the basis of investigation of past reported incomes, reductions in tax rates will also yield higher, not lower, revenues. The expansion of tax base will offset the effect of the reduction in the tax rate.The lower corporate profit tax means higher return on investment and hence greater incentive to invest. The demand for investment by corporations will rise. The lower tax rate would also translate in higher profits and hence higher corporate savings. Additionally, attracted by higher returns on corporate investment, households may channel more of their savings into financial markets.Therefore, the tax cut promises to raise investment, especially in the formal sector. The only qualification is that the government must refrain from borrowing the additional financial savings and converting them into current expenditures.In India, capital is a far scarcer factor of production than labour. Corporations can commonly be heard complaining about the high interest rates, but not high wages. Therefore, one would expect them to spread scarce capital over a large workforce. But one of India’s most enduring paradoxes is that its corporations do exactly the opposite, investing in the most capital intensive industries and technologies. For instance, in the auto sector, the largest single sector in manufacturing, the wage bill for all workers from the managing director down to the watchman accounts for less than 5% of the total cost.India can ill-afford to squander its scarce capital in this manner. If creating good jobs is a priority for the nation, we need additional reforms that would nudge our corporations to spreading the nation’s scarce capital over many more workers. This points in the direction of labour law reforms. It is time that the government finally took this bull by the horns.Minimally, the Prime Minister must personally see to it that the code on industrial relations, currently under preparation, ends the effective ban on the termination of workers by manufacturing enterprises employing 100 or more workers. Prime Minister Indira Gandhi introduced this archaic regulation four decades ago and it is time we bid goodbye to it.Modi could follow the model he himself pioneered in the Special Economic Zones in Gujarat back in 2004. Under his leadership, the state returned to enterprises the right to terminate workers in its SEZs on the condition that they paid terminated workers 45 days worth of wages for each year worked.From a short-run perspective, the large cut in corporate profit tax, which is predicted to result in revenue loss of up to 0.7% of the GDP, poses a dilemma for the government. If it leaves expenditure where it is, its fiscal consolidation will take a beating. If it cuts expenditure, the measure will be contractionary at a time when aggregate demand is already weak.The way out of this dilemma is another set of important pro-growth reforms: strategic sales of public sector enterprises (PSEs); monetisation of infrastructure assets such as highways, airports, ports, railway stations and power transmission lines; and sale of unused government-owned urban land. PSE sales and asset monetisation have already been on the government’s policy agenda. It must now pursue this agenda vigorously, adding the sale of urban land to it.By moving forward aggressively on these fronts, the government has the unusual opportunity to kill four birds with one stone: it will avoid slipping on fiscal consolidation; it will maintain the aggregate demand; it will greatly enhance efficiency of PSEs, infrastructure assets and urban land; and it will signal its resolve to move ahead towards a $5 trillion economy.