HYDERABAD: About 1,000 listed entities could save Rs 37,000 crore in taxes on account of the corporate tax cut announced by the government last week, according to Crisil Research.
This is nearly a fourth of the total savings anticipated by the government but could go up this fiscal, as Crisil estimates a 5-6 per cent growth in India Inc’s revenues and Ebidta in FY20. “Over the past few days, a slew of measures have been introduced to address the slowdown in the Indian economy. Friday’s announcement, however, is the most material,” it said.
According to Crisil, these 1,000 firms comprise 70 per cent of NSE’s market capitalisation and are spread across 80 sectors, including oil and gas and financial services, which account for nearly a third of the tax paid by India Inc.
Following last Friday’s announcement, the effective corporate tax rate inclusive of cesses and surcharges stands at 25.17 per cent, bringing India on a par with most Asian economies. It added that segments linked to the consumer would benefit the most, given higher effective tax rates of over 30 per cent, while export-linked sectors such as IT and pharma would benefit the least. They account for just about 5-6 per cent of the potential savings as they already have low effective tax rates. For instance, IT firm HCL Technologies effectively paid 19 per cent corporate tax in FY19.
Meanwhile, the ratings firm indicated that companies in the consumption space were intent on passing the benefits to consumers in the form of discounts and tactical price shifts to gain market share. "Tax benefits would also vary within sub-segments. For instance, with the consumption space, assessment of automobile manufacturers that account for 50 per cent of volumes sold indicates that tax cuts may have limited benefits because of already lower effective tax rates. But auto component manufacturers, which bear higher effective tax rates, may see maximum gains, an analysis of 70 firms that account for 20 per cent of the market showed," it noted.
Lastly, capital expenditure will depend on demand revival and upcoming sectors like electric vehicles and their batteries, cellphone manufacturing and consumer electronics may gain traction under the Make in India initiative because of the tax benefits, Crisil Research said.