Corporate tax cuts could help top 1,000 listed firms save Rs37,000 cr: Crisil

The government on Friday announced a major reduction in the corporate tax rate for all domestic companies from 30 per cent to 22 per cent, bringing the effective tax rate, inclusive of surcharge and education cess, down from 34.94 per cent to 25.17 per cent.

For all new domestic manufacturing the tax rate has been brought down to 15 per cent along with other fiscal reliefs.

The reduction in corporate tax rate and other reliefs are estimated to cost the government Rs1,45,000 crore in annual revenue foregone, finance minister Nirmala Sitharaman had said while announcing the tax sops.

For new manufacturing firms, the effective tax rate will be 17.01 per cent inclusive of surcharge and cess.

Companies in the consumer goods sector that were taxed at a higher rate would benefit the most while sectors such as IT and pharma, will benefit the least, Crisil Research stated.

Over 25,000 companies made profits in FY18, and they accounted for nearly 60 per cent of the tax paid by India Inc, Crisil Research said in its report. 

Of this 1,074 companies with revenues of Rs1,000 crore or more had the highest effective tax rate of 27 per cent, and they accounted for nearly 40 per cent of the total corporate tax revenue, and nearly 80 per cent of the tax collected, as per CRISIL Research estimates. 

Nearly 1,360 companies with revenues of Rs400-1,000 crore had an effective tax rate of 24 per cent, while the large majority (about 24,000) with less than Rs400 crore in revenues had an effective tax rate of 25.4 per cent.

“Our analysis indicates these 1,000 companies could see tax savings of Rs37,000 crore, or nearly a fourth of the total savings anticipated by the government. A caveat is in order: these estimates are based on profit before tax for fiscal 2019. Given that we expect 5-6 per cent growth in India Inc revenues and EBIDTA for this fiscal, the savings could end up a tad higher,” said Crisil Research.

These companies, including oil and gas and financial services, account for nearly a third of the tax paid by India Inc. “These estimates are based on profit before tax for fiscal 2019. Given that we expect 5-6 per cent growth in India Inc revenues and Ebitda (earnings before interest, tax, depreciation and amortisation) for this fiscal, the savings could end up a tad higher,” it added.

According to Crisil Research's analysis, of nearly 1,000 companies across 80+ sectors and covering more than 70 per cent of NSE's market capitalisation, have seen their effective tax rates rising over the past 5 years.

The drop in tax rate would now bring India at par with most Asian economies, it added.