₹37,000 crore tax savings for top firms
Due to Centre’s move to cut corporate tax rates from 30% to 22%
The Centre’s move to cut corporate tax rates from 30% to 22% through an ordinance issued on Friday will yield tax savings of at least ₹37,000 crore for the top 1,000 listed companies, said Crisil Research in an impact note called ‘Tax s(h)aving’ released on Sunday.
These firms account for over a fourth of the ₹1.45 lakh crore tax revenue loss estimated by the government. The tax savings for these firms could be even higher, Crisil reckoned, as the ₹37,000 crore estimate is based on profits before tax for 2018-19.
Oil and gas, financial services and consumer-facing businesses will benefit the most from the tax cuts, while export-oriented sectors including IT and pharmaceuticals may not gain much as their effective tax rates are already low thanks to tax incentives and exemptions.
The average effective tax rate for the 1,000 listed firms had crept up from 27% in 2013-14 to 33% in 2018-19, said Crisil.
“Companies in the highest bracket account for a large proportion of taxes and would also benefit more given the higher tax rates... Nearly 40% of these (1,000) companies had an effective tax rate of over 30%,” it said.
About 25,000 companies made profits in India in 2017-18, of which 1,074 companies with a revenue of ₹1,000 crore or more, had the highest effective tax rate. The effective tax rate for nearly 24,000 firms with revenues below ₹400 crore revenues was 25.4%.
As per the new rates announced by Finance Minister Nirmala Sitharaman, the effective tax rate for domestic corporates, inclusive of surcharges, will fall from 34.94% to 25.17% if they stop availing any other tax sops.
Fresh capital investments from industry, will however, depend on the efficacy of measures to revive demand. “New sectors such as electric vehicles and their batteries, cellphone manufacturing, and consumer electronics may gain traction under the ‘Make in India’ programme because of the tax benefits announced on new investments,” the note said.
All new manufacturing businesses, set up after October 1, 2019 and commencing operations by March 31, 2023, will be effectively taxed at 17.1%, compared to 29.1% presently.
Gains for auto component manufacturers
While automobile manufacturers may have limited benefits because of already lower effective tax rates, auto component manufacturers who pay higher effective tax rates, may see the maximum gains, Crisil noted.
Indian industry’s revenues are expected to grow 5% to 6% in this fiscal year.
Oil and gas, financial services and consumer-facing businesses will benefit the most from the tax cuts, while export-oriented sectors including IT and Pharmaceuticals may not gain much as their effective tax rates are already low thanks to tax incentives and exemptions.
The average effective tax rate for the 1,000 listed firms studied by Crisil had crept up from 27% in 2013-14 to 33% in 2018-19, said Crisil Research in an impact note called ‘Tax s(h)aving’ issued on Sunday.
“Companies in the highest bracket account for a large proportion of taxes and would also benefit more given the higher tax rates... Nearly 40% of these (1,000) companies had an effective tax rate of over 30%,” Crisil said.
About 25,000 companies made profits in India in 2017-18, of which 1,074 companies with a revenue of Rs 1,000 crore or more, had the highest effective tax rate. The effective tax rate for nearly 24,000 firms with revenues below ₹ 400 crore revenues was 25.4%.
As per the new rates announced by Finance Minister Nirmala Sitharaman, the effective tax rate for domestic corporates, inclusive of surcharges, will fall from 34.94% to 25.17% if they stop availing any other tax sops.
Fresh capital investments from industry, will however, depend on the efficacy of measures to revive demand. “New sectors such as electric vehicles and their batteries, cellphone manufacturing, and consumer electronics may gain traction under the ‘Make in India’ programme because of the tax benefits announced on new investments,” the note said.
All new manufacturing businesses, set up after October 1, 2019 and commencing operations by March 31, 2023, will be effectively taxed at 17.1%, compared to 29.1% presently.
While automobile manufacturers may have limited benefits because of already lower effective tax rates, auto component manufacturers who pay higher effective tax rates, may see the maximum gains, Crisil noted.
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