Finance minister Nirmala Sitharaman has lowered various tax rates for domestic companies to 25 percent from 34 percent previously, including the surcharge and cess. The government has also reduced tax rates for new companies to 17.1 percent for new manufacturing units that will be established after October 1, 2019, said Sitharaman in a statement. Moreover, the finance minister said the listed companies,
which have already made a public announcement of buy-back before July 5, 2019, will not be required to pay the tax on buyback of shares. Analysts and companies believe the proposed tax cuts will benefit all the industries. Here is what business leaders and industry experts have to say on the proposed tax rates: Keki Mistry, vice-chairman and CEO, HDFC
"I think it is a huge positive. It is the kind of fillip that the industry required. This will facilitate more investments into the economy and I think the two important things which we needed was more investments and higher consumption."
Rajat Rajgarhia, Motilal Oswal Financial Services
"I think prima facie, most of the private banks are typically at the top end of the bracket from the tax rate point of view. These companies typically – if you look at their profit and loss (P&L) accounts, they are anywhere between 33 and 35 percent tax rates. I think most of them immediately will benefit from this. They also don’t have much of the concession that some of the other sectors may be availing."
"Secondly, even many companies on the consumption bracket are going to see their operations over a period of time coming out of the tax incentive zone. So the benefit for them could be partially in FY20, I think markets will very quickly try to assess how the benefits are going to get further enhanced in the coming years because this is not just what benefit companies get in FY20, this is also the longer-term benefit that companies will start getting in."
Nilesh Shah of Envision Capital
"This is an extremely positive step initiated by the government. I think the fiscal stimulus was something which was required and these are very well targeted stimulus measures especially the fact that it encourages producers or entrepreneurs to go out there and set up manufacturing operations and leave a lot more for them on a post-tax basis to re-invest in their businesses. This is an extremely positive move it is something which of course boost earnings as well. That is something which was required and I think it is an extremely welcome move."
S Subramaniam, Titan
"This is fantastic news. 29 percent is the effective tax rate today so we got a 4 percent savings straight away. That straight away goes to earnings but one of the things all companies may have to look at is to boost demand. You may want to also look at passing on some of that benefit to the consumer. So it is a great thing. This really gives us that leverage. The mood changes dramatically, and when mood changes people are more positive and actually consuming more and this is very good news for the festive season. I think there is something which is likely to happen in the festive season."
Kiran Mazumdar Shaw, CMD, Biocon
"I think it is excellent news because this is really a much wanted and much-needed reform. This will actually do multiple things. It will, of course, get the investment cycle buoyed up, it will also create greater growth of a capital market and of course from a company’s point of view, it allows them to be more compliant in terms of their debt ratios because they will be able to add more profitability to their bottom line. So I think, all in all, it is welcome news.
Navneet Munot, CIO, SBI Mutual Funds
"An economy needs cash, confidence and courage, RBI started releasing cash, the FM has given out a huge amount of confidence, has shown courage. It is up to all of us to now also be courageous whether as a stranger or as a business or as an investor. It seems like Dussehra and Diwali has come before."
Vallabh Bhanshali of Enam Securities
"I see this after 1991 this is one of the greatest responses that I have seen. When I see it in combination with what the Reserve Bank has been doing over the last six months the pragmatic path they have taken and the opportunity in the globe this is extraordinary."
Ajay Piramal, chairman, Piramal Enterprise
"This is a thing that was totally unexpected, a very pleasant surprise. I think it will kick-start the economy. As important as the benefit that we are seeing, it is like she is foregoing Rs 1,45,000 crore in terms of tax, it is also the whole positive sentiment. It gives the impression now that the government is hearing what business has been saying, they are willing to embrace business as a partner in the progress of the country."
Pronab Sen, Former Chief Statistician
"It would fire up the economy up to a point but it doesn’t address the demand constraint because at the end of the tax cuts are useful if an only if you are expecting to make profits. But if the demand situation is such that you don’t see your sales growing or profits increasing then tax cut only acts as a bonanza and that too only people who have very low consumption propensities. So, it certainly does not do anything on the demand side, it is yet another supply-side measure."
"The reading of most economists and analysts is that supply-side measures are not going to work in the short-run, we need demand-side measures."
Ajay Bodke, CEO PMS, Prabhudas Lilladher
"By slashing corporate tax rates, the government has rolled out a red carpet that would ensure hundreds of billions of dollars of FDI & FII flows over the medium term. Equity markets would rejoice as the multi-year cycle of earnings downgrade will finally come to an end. A significant valuation re-rating will follow as the market would start building in a virtuous cycle of an upgrade in earnings trajectory over the medium-term due to both tax savings & boost in revenues due to perk-up in aggregate demand."The engine of domestic consumption will fire first followed by the investment engine on the back of corporates regaining their mojo. Incentives announced last week for the export sector will also support the third engine of growth i.e. exports. It is in a true sense an early arrival of the festival of lights (Diwali) and banishment of a long period of darkness & gloom bothering the Indian economy.""