The pharmaceutical sector which enjoys a host of tax exemptions will not see any tangible benefits from the corporate tax rate cut announced last week by the government, research firm ICRA has said in a report.
The pharma companies get a slew of tax exemptions such as income tax exemptions for Export Oriented Units or entities operating in special economic zones and GST linked benefits from operating in tax free zones among others. Hence, several leading players have a tax rate of 24-26 per cent, which falls in line with the new corporate tax rate of 25.2 per cent.
According to the ICRA sample, the total tax rate of 14 leading companies such as Cipla, Torrent Pharma, Sun Pharma and Glenmark stood at 26.7 per cent and 24.6 per cent for FY18 and FY19, respectively. “Overall at a sector level, the total tax rate is broadly in line with proposed reduced rates, hence the benefit is not likely to be material in the longer run,” said the report.
However specific companies which are enjoying lower rates owing to MAT applicability will marginally benefit in the near term as MAT rates have been reduced from 18.5 per cent to 15 per cent (excluding surcharge), explained the ICRA report.
ICICI Direct Research had also in a report highlighted that the effective tax rate in case of most pharma companies is either below or at par with the new tax rate, so tax rate cut won’t make much of a difference to them.