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The stocks of media and entertainment companies rallied on the back of corporate tax rate cut announcement last Friday. As the effective tax rate for most companies in this industry is higher than the 25.17 per cent (including cess and surcharge) rate, they may opt for the new rate, foregoing tax exemptions and MAT credit, if any.
For print media players such as DB Corp and Jagran Prakashan, effective tax rates in FY19, after eligible exemptions and tax incentives, work out to 28-36 per cent of their standalone PBT. If they adopt the new tax regime, the tax savings could improve their earnings that are under pressure due to increased newsprint costs. Similarly, entertainment companies such as Zee Entertainment and Sun TV may be able to pass on the benefit to their customers or increase their expenditure to offer better services. Multiplexes players such as PVR and Inox Leisure also stand to benefit from lower tax outgo.
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