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What will be the impact of corporate tax cut on companies & sectors?

After the tax cut announced by the Finance Minister, the effective tax rate for all domestic companies has been reduced to 25.17%.

, ET Bureau|
Sep 30, 2019, 06.30 AM IST
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tax19-getty
Introduction of even lower tax rate of 15% for new manufacturing companies will benefit companies looking to set up capacity in India.
India Inc and the stock market cheered the sharp cut in tax rate for domestic companies from 30% to 22%.

ET Wealth explores the different facets of this historic reform.

India’s combined effective tax rate was among the highest globally
After the tax cut, the effective tax rate for all domestic companies has been reduced to 25.17%
old-corporate-tax-rates
Source: OECD, Tax Foundation. Figures in %

India’s base corporate tax now on par with most Asian countries
With sharp cut in tax rate, India Inc’s competitiveness vis-à-vis fi rms from other countries will improve.
new-corporate-tax-rates
Source: Kotak Economics Research

The tax cut will boost Nifty earnings growth
Profitability of firms will immediately improve. Analysts have accordingly revised earnings estimates upwards (from 16% to 25% for 2019-20)
Nifty-Earnings-Growth
EPS is earnings per share. Source: Motilal Oswal Financial Services

Expect sharp fall in number of companies paying high tax
Under the old tax regime, more than half of the Nifty companies were paying in excess of 30% effective tax rate. This number will drop to three.
no-of-companies-paying-high-taxes

Some companies will see higher earnings...
These companies benefit the most as their effective tax payout was much higher than others.
higher-earnings
Source: Motilal Oswal Financial Services

...while others will not gain much
Companies with low effective tax rate earlier will see only modest revision in earnings estimates.
not-gaining

Over the years, pvt companies have shelled out more tax than public ones
Private firms mostly operate in areas that pay higher effective tax. Public sector companies have very little presence in these sectors.
pvt-vs-PSU
Source: Motilal Oswal Financial Services

Gap in tax paid by manufacturing firms and others has widened
Introduction of even lower tax rate of 15% for new manufacturing companies will benefit companies looking to set up capacity in India.
Mfg-vs-nonMfg
Source: Motilal Oswal Financial Services

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Historic: Narendra Modi on corporate tax cut

Corporate tax cuts alone will not stimulate private capex: Ind-Ra

Corporate tax cut is a signal to structural reforms: CEA

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