The reduction in corporate tax announced by Finance Minister Nirmala Sitharaman on Friday could help the top 1,000  listed companies in the country save at least ₹37,000 crore this fiscal year.

Segments linked to the consumer  will benefit the most given higher effective tax rates of over 30 per cent. Export-linked sectors such as IT and pharma, on the other hand,  will benefit the least, accounting for only 5-6 per cent of potential savings. That’s because they already enjoy low effective tax rates.

According to an analysis by CRISIL Research, over 25,000 companies made profits in FY18, and they accounted for nearly 60 per cent of the tax paid by India Inc. Of this 1,074 companies with revenues of ₹1,000 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. Nearly 1,360 companies with revenues of ₹400-1,000 crore had an effective tax rate of 24 per cent, while the large majority (about 24,000) with less than ₹400 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 ₹37,000 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.

Sitharaman had, on September 20, announced a slew of tax measures for India Inc including reducing the effective tax rate for domestic companies to 25.17, provided they do not take any incentives. For new manufacturing firms, the effective tax rate will be 17.01 per cent inclusive of surcharge and cess.

Arun Singh, Chief Economist at Dun and Bradstreet, said the tax rate cut, along with the removal of tax on share buybacks by listed companies, is expected to revive  corporate sentiment and provide an impetus to companies to kick-start their capex plans. Investment demand indicated by a gross fixed capital formation, which used to be around 35 per cent in 2013, has now fallen to 32 per cent.

But the measures are negative for the bond markets in the short term because of the impending fiscal slippage.

GR Arun Kumar, Executive Director at Vedanta Ltd and Group CFO at Vedanta Resources, said  the new tax rate should be extended to multinational entities as well.

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