The effective tax rate (ETR) was reduced for around 4000 listed entities and companies have reported to benefit from it. According to a report by the economic branch of State Bank of India (SBI), the reduction in effective tax rate along with a prolonged period of low interest rate due to pandemic has actually been a blessing for Indian companies. “Our analysis shows that cut in taxes in FY20 has contributed 19 per cent to the top line of sample sectors during pandemic with sectors like cement, tyres and consumer durables showing significant contribution even in excess of 50 per cent,” SBI said in its report.
The effective tax rate for companies declined from 35 per cent in FY20 to 26 per cent in FY21. The research note said that the sectors including Engineering, Realty, Automobiles, and Trading among others have reported reduction from 1 to 24 per cent in ETR during FY21. The ETR reduction has benefitted even though the actual tax paid by companies increased by more than Rs 50,000 crore. During the pandemic, SBI noted that 15 sectors have reduced loan funds by around Rs 2.09 lakh crore. For sectors like Steel, Refineries, Textiles, Fertilisers, and Mining, the loan funds have reduced in the range of 6 per cent to 64 per cent in FY21.
Apart from this, an extended period of low interest rates have also helped companies “in massive deleveraging” further contributing an average 5 per cent to their overall revenues. “Sectors like Consumer Durables, Healthcare and Cement have benefitted the most. In terms of expenditure reduction, the overall contribution on the top line has been as much as 31 per cent with most companies finding new ways to navigate through the pandemic,” read the SBI note.
Sectors like Apparel and Refineries have also cut the cost by as much 107 per cent on an average. However, despite this, expenditure for sectors like metals, agro chemicals among others increased on the back of increased input costs owing to a surge in global commodity prices.