ET Wealth
12,119.00-129.25
Stock Analysis, IPO, Mutual Funds, Bonds & More

What will be the impact of corporate tax cut on companies & sectors?

After the tax cut announced by the Finance Minister, the effective tax rate for all domestic companies has been reduced to 25.17%.

, ET Bureau|
Last Updated: Sep 30, 2019, 06.30 AM IST|Original: Sep 30, 2019, 06.30 AM IST
0Comments
Getty Images
tax19-getty
Introduction of even lower tax rate of 15% for new manufacturing companies will benefit companies looking to set up capacity in India.
India Inc and the stock market cheered the sharp cut in tax rate for domestic companies from 30% to 22%.

ET Wealth explores the different facets of this historic reform.

India’s combined effective tax rate was among the highest globally
After the tax cut, the effective tax rate for all domestic companies has been reduced to 25.17%
BCCL - Non Copyright
old-corporate-tax-rates
Source: OECD, Tax Foundation. Figures in %

India’s base corporate tax now on par with most Asian countries
With sharp cut in tax rate, India Inc’s competitiveness vis-à-vis fi rms from other countries will improve.
BCCL - Non Copyright
new-corporate-tax-rates
Source: Kotak Economics Research

The tax cut will boost Nifty earnings growth
Profitability of firms will immediately improve. Analysts have accordingly revised earnings estimates upwards (from 16% to 25% for 2019-20)
BCCL - Non Copyright
Nifty-Earnings-Growth
EPS is earnings per share. Source: Motilal Oswal Financial Services

Expect sharp fall in number of companies paying high tax
Under the old tax regime, more than half of the Nifty companies were paying in excess of 30% effective tax rate. This number will drop to three.
BCCL - Non Copyright
no-of-companies-paying-high-taxes

Some companies will see higher earnings...
These companies benefit the most as their effective tax payout was much higher than others.
BCCL - Non Copyright
higher-earnings
Source: Motilal Oswal Financial Services

...while others will not gain much
Companies with low effective tax rate earlier will see only modest revision in earnings estimates.
BCCL - Non Copyright
not-gaining

Over the years, pvt companies have shelled out more tax than public ones
Private firms mostly operate in areas that pay higher effective tax. Public sector companies have very little presence in these sectors.
BCCL - Non Copyright
pvt-vs-PSU
Source: Motilal Oswal Financial Services

Gap in tax paid by manufacturing firms and others has widened
Introduction of even lower tax rate of 15% for new manufacturing companies will benefit companies looking to set up capacity in India.
BCCL - Non Copyright
Mfg-vs-nonMfg
Source: Motilal Oswal Financial Services

Also Read

Rupee rallies 40 paise on corporate tax cut

Historic: Narendra Modi on corporate tax cut

Government may get Rs 45,000 crore cushion on corporate tax cut

Corporate tax cuts alone will not stimulate private capex: Ind-Ra

Comments
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links


Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service