Has the Corporate Tax cut for Companies increased its Profitability ?
There are two changes were made in the last month on behalf of the Ministry of Finance – Corporate Tax Cut and Reduced on GST rates on several products.
As a result of the above, the Indian Stock Market had rose for two days with more than 1 Percent on Index. The measures were said to boost the Economy and raise the Investments.
Now, the Tax rates for the Companies went down to 22 Percent from the earlier 30 Percent. In few sectors, there is a weak demand consumption and increased in Products led to a Slow down recently. And also this affected the sales of Large Companies.
Weak Demand Consumption in a developing Country like India, is not a favorable one for the Capital Market. The Current economy needs its real demand and investments. Employment created through Subsidies by the Government is not a real growth, as it needs the own path to Create Jobs and Earnings.
Tax Reductions, Changes in Government policies and Land acquisition, etc are under the control of State. Growth is not possible without Public Private Partnership (PPP) in a Emerging Economy. However it is essential that the Government does its service well and the Private Companies have to create investments and more employment opportunities.
The Quarterly (Q2FY20) results for the September end quarter of the Fiscal 2019-20 are in Effect. The Net Profits of Listed companies have increased in a way that nobody expected. This results can be found in many companies, some like TVS Motor, HUL, Reliance Industries, Avanti Feeds and more.
Mostly the two things – Other Income and Low Tax rates have benefited from its Profitability, though the Company’s Sales have not been as large as the reported Quarter. The Profit of few companies in the Automotive sector are largely dependent on Tax Cut. Similar Changes have also occurred in Consumer Goods.
According to the Q2FY20 results released so far, most of the companies have paid the Tax in low rates as compared to the Previous quarter. The impact has also been on the profits of the Companies. Unexpectedly, in a Economy Slow down like this, Every companies are showing their results in a positive which is a good thing for the Investors.
The Only thing we have to look at is how the Companies handle their earned Profits. Usually, Companies can use their profits for subsequent growth. The Companies may used this to pay off their loans. Otherwise, it should distribute this profits to Shareholders like Dividend, Bonus Issue or Buy back of Shares.
So, we can benefit from the current profits of Companies as an Investor. At the same time, Customers and General Public who are consuming the products and services should benefit by these profits. Therefore, the current tax cut will help to maintain the Financial Position of the Companies.
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