Tax reduction, cost cuts buoys India Inc net by 105% in FY21: Report

This comes even though the topline declined 5 per cent

The steep corporate tax cut in 2019 and pandemic-driven cost-cutting boosted the bottomline of India Inc by 105 per cent in FY21 over FY20, even though the topline declined 5 per cent, according to a report.

This also had 4,000 listed companies paying record corporate tax, a net increase of over Rs 50,000 crore in FY21 to Rs 1.90 lakh crore, from around Rs 1.40 crore in FY20, an analysis by SBI Research showed on Tuesday.

The government had slashed the effective corporate tax rate from 35 to 26 per cent in September 2019, coupled with lower expenses due to the pandemic, has boosted their bottomline to record levels in FY21, the report said without citing the actual profit numbers.

For these companies, average revenue fell only 5 per cent in FY21, but their net income grew by 105 per cent over FY20, the report said without quantifying it.

The tax cut has contributed 19 per cent to the topline of these companies during the pandemic with cement, tyre and consumer durables gaining in excess of 50 per cent, it added.

More importantly, 15 sectors led by refineries, steel, fertilisers, textiles, pharma, IT, mining, etc reduced their loan funds in the range of 6-64 per cent or to the tune of Rs 2.09 lakh crore in FY21, which again boosted their bottomline.

Carrying on the benefit of cost cuts, arising from lower expenses by way of salary cuts (3 per cent overall for these 4,000 companies in the name of the pandemic), have come as a blessing in disguise for the government in FY22 as corporate tax mop-up in the first two months of the fiscal is the best in two decades at Rs 43,454 crore, up from Rs 16,981 crore in FY20, and Rs 1,126 crore in FY19, according to Soumya Kanti Ghosh, group chief economic adviser at State Bank of India.

The first two months of FY22 saw the fiscal deficit at just Rs 1.2 lakh crore, only about a third of what the government has been borrowing on average at Rs 3.5 lakh crore during the same period in FY19 and FY20.

The deficit reduction was on the back of higher overall tax revenue of Rs 1 lakh crore, he noted and expects the government to comfortably meet its tax revenue goals this fiscal if the tax buoyancy is maintained, which is more likely given that corporate profits are on record highs.

The low-interest-rate regime has also helped companies massively deleverage, which has contributed to an average of 5 per cent to their overall topline, especially for the consumer durables, healthcare and cement sectors.

For many sectors -- including engineering, reality, automobiles and trading -- the effective tax rate reduction ranged from 1 to 24 percentages in FY21. For the realty sector, it was down to 26 from 50 per cent, for automobiles it is down from 36 per cent to 33 with the least gain for FMCGs and packaging wherein it is down by only 100 bps each.

Expenditure cut contributed 31 per cent to topline with most companies finding new ways to navigate the pandemic, with apparel and refineries cutting costs by 107 per cent on an average.