Banks, FMCG sector to gain from tax cut, IT firms get little

​The effective tax rate for these companies shall be 25.17 per cent inclusive of surcharge and cess. Also, such companies shall not be required to pay Minimum Alternate Tax.

Published: 23rd September 2019 04:53 AM  |   Last Updated: 23rd September 2019 12:13 PM   |  A+A-

Income Tax

For representational purposes

By Express News Service

NEW DELHI: The government’s Rs 1.45 lakh crore tax sop will boost sectors such as banking and fast-moving consumer goods (FMGC), which are in the high tax zone, but sectors such as IT and pharma may not see any tangible benefits as they already enjoy tax holidays.

The government last week announced slashing of the income tax rate for corporates, which allows any domestic company the option to pay income tax at 22 per cent subject to the condition that they will not avail of any exemption or incentive.

The effective tax rate for these companies shall be 25.17 per cent inclusive of surcharge and cess. Also, such companies shall not be required to pay Minimum Alternate Tax.

According to ICICI Direct Research, this will immensely benefit sectors such as banking and FMCG.

“Overall, banks in our coverage are expected to report 11-13 per cent increase in PAT, leading to 1-3 per cent increase in adjusted book value (ABV). Large private banks remain major beneficiaries, with HDFC Bank reaping larger gains,” ICICI Direct Research said in a report.

In the capital goods space, the companies have effective tax rates of 25-34 per cent. The corporate tax cut will have a significant positive impact on the mid-cap companies, it said.

Consumer durable companies pay an effective tax of between 25 per cent and 35 per cent, and the cut will benefit most of them.

“The FMCG companies are expected to witness 5-12 per cent increase in earnings on the back of corporate tax reduction. More importantly, the possibility of passing on this benefit and propelling the volume growth would be on the cards,” it said.
However, the report added, “On the flip side, sectors like IT and pharma are not expected to see any upgrades on account of existing lower tax rates.”

The effective tax rate in case of most pharma companies is either below or at par with the new tax rate due to special economic zone benefits, tax-free zone benefits, unused MAT credit, and R & D benefits.

Giving a sectoral analysis of the impact of the tax cut, ICICI Direct Research said domestic auto equipment makers would benefit from the tax cut.

“Commercial vehicle manufacturers will tend to gain from the kick-starting of the private capex cycle,” The report added.

While cement companies, which currently have higher tax rates, would benefit significantly from the reduction, only a few players would benefit in the construction sector, it said.


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