Even as the reduction in corporation tax from 30% to 25% over the next four years as proposed in the Union Budget has been welcomed by the industry by and large, it is hardly going to benefit the Indian IT services companies.
Among the top-tier IT services companies, Infosys perhaps will be the only company which may see some marginal benefits as the effective corporate tax rate for the firm has been higher than the rest of the pack.
“Infosys can be a slight beneficiary as its existing current rate is over the 25% level, but even that benefit will be spread over four years,” a post Budget note by Credit Suisse, said.Read our full coverage on Union Budget
“Contrary to perception, the effective tax rates of the Indian IT services companies, is reasonably close to 25% as tax exemptions have been slowly getting diluted and interest income is fully taxed. It is also not clear yet whether the gradual removal of exemptions will apply to exports from special economic zones,” Credit Suisse analyst Anantha Narayan said in the note.
Prior to the budget announcement, the FY17 tax rate for the largest player TCS was expected to be around 23% while for Wipro it was pegged at 22% and HCL Technologies around 22%. However, for Infosys and Tech Mahindra, the FY17 expected tax rates were seen at 28% and 26% respectively, it said.
For the industry overall, the effective corporate tax rate was 23.22% in FY 2013-14, though it was a 78 basis points improvement over the previous fiscal.