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Media and entertainment sector would benefit significantly from the corporate tax rate cut. The effective tax rate for most of the companies in this sector is higher than the 25.17 per cent rate (including surcharge and cess) that has been announced.
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Here is a look at the companies who would gain from this measure.
Key players to benefit
Among the print media companies, effective tax rates in FY19, after all eligible exemptions and tax incentives works out to 28-36 per cent of their standalone PBT (profit before tax). For instance, for Jagran Prakashan and DB Corp the effective tax is around 28 per cent and 26 per cent respectively. These companies, if they adopt the new corporate tax regime, could get relief, even if they forego their exemptions and MAT credit. It could improve their earnings that are under pressure due to increased newsprint costs. The advertisement revenue, which forms over 70 per cent of their total revenue, is also on the decline due to the slowdown in the economy. For instance, DB Corp reported ad revenue decline of about 3 per cent y-o-y for the June quarter FY19, primarily attributed to the decrease in advertisements from sectors such as automobile, lifestyle and education.
Similarly, for entertainment companies such as Zee Entertainment and Sun TV, current effective tax rates work out to be around 37 and 33 per cent respectively. If they adopt the new tax rate of 25.17 per cent, they could improve their earnings and witness 11-18 per cent rise in profit (after tax) led by tax savings. Given the intense competition in the content distribution industry, the reduced tax out could come as a big relief. These companies could be able to pass on the benefit to their customers or increase their expenditure to offer better services which in turn could result in improved earnings.
The multiplexes players such as PVR and Inox Leisure also stand to benefit from lower tax outgo, of 25.17 per cent corporate tax if adopted. The effective tax rates, for these companies, at present, are between 30 and 33 per cent. It may be worthwhile to opt for the new rate, foregoing tax exemptions and MAT credit if any, as they are likely to save more on tax expenses.
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