Electrical appliances may not get cheaper anytime soon even after Nirmala Sitharaman’s tax cuts

By: |
September 27, 2019 4:48 PM

Those expecting consumer electricals such as fans, air conditioners, water heaters, etc to get cheaper may have to wait longer, as companies are not likely to cut prices of such appliances any time soon.

Sitharaman on Friday announced a raft of measures, including rollback of enhanced super-rich tax on foreign (PTI Photo)Major players, including Crompton Consumer/Havells, are not likely to pass on the benefits to the customers and will be the biggest beneficiaries of the tax cuts passed by Sitharaman. (PTI Photo)

Those expecting consumer electricals such as fans, air conditioners, water heaters, etc to get cheaper may have to wait longer, as companies are not likely to cut prices of such appliances any time soon, even after Finance Minister Nirmala Sitharaman’s massive corporate tax relief. The organised players will likely retain the benefits from the corporate tax rate cuts. “Corporate tax rate cut is likely to benefit organized players” and “companies with strong pricing power are likely to retain the benefits,” Motilal Oswal said in a recent report. However, in certain highly competitive categories, companies may be compelled to reduce rates and pass on tax savings to consumers.

Cui bono?

Major players, including Crompton Consumer/Havells, are not likely to pass on the benefits to the customers and will be the biggest beneficiaries of the tax cuts. Further, Voltas and Blue Star are also likely to see benefit. Voltas especially has an edge because of its dominant position in the AC industry. Among other benefits to the organised players in consumer electricals, the corporate tax cut also means that these companies will snatch a significant portion of market share from the unorganized sector.

Meanwhile, consumer electricals is not the only sector where leaders are not willing to pass on benefits to customers. Some consumer goods companies such as Dabur, Marico and Godrej are also expected to keep the rate cut benefit to themselves and continue to get taxed at the current rate of 30%. “Dabur, Marico, and Godrej Consumer Products Limited will likely continue to avail exemptions while staying at a marginal tax rate of 30%, given that their current effective tax rate is below 25.6%, anyway,” Kotak Institutional Equities recently said in a research note.

Finance Minister Nirmala Sitharaman recently rolled out hefty corporate tax rate cuts to ease the burden and spur demand amid ongoing economic slowdown. The government revised the corporate tax structure and brought it down to 22% and 25.6% marginal and effective tax rates on companies from the earlier 30% and 35% slab, respectively.

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