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Corporate tax cut: Here's how pharmaceutical companies will benefit

healthcare | Sept 20, 2019 4:40 PM IST

Corporate tax cut: Here's how pharmaceutical companies will benefit

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Finance Minister (FM) announced slew of measures to revive the economic slowdown, slashed corporate tax rate to 22 percent without exemptions. Pharmaceutical sector is underperforming the indices today and the overall markets. Ekta Batra has more details.

Finance Minister Nirmala Sitharaman on Friday announced that the government proposed to cut corporate tax rates to 22 percent for domestic companies provided they will not avail exemptions or incentives and 15 percent for new domestic manufacturing enterprises as part of a raft of measures to boost economic growth.

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The effective tax rate cut is going to benefit the pharmaceutical companies. Companies that have a 100 percent domestic focus or a majority domestic focus will benefit more. The case in point for this would be Dr Lal Path Labs. The diagnostic company pays a tax rate of around 35 percent. It is expected to probably reduce by 9 percent to around 26 percent.
The other example would be a lot of the multinational companies (MNC) focused pharmaceutical companies which derive majority of their revenues from India. GlaxoSmithKline, which pays around 35 percent in terms of a tax rate is probably expected to see its tax rate reduced by around 10 percent. Similar case for the other such as Pfizer, Sanofi etc.
In terms of the other companies however, it depends on the proportion in terms of the US business as well as the kind of R&D incentives etc. For example, Cipla, Aurobindo Pharma probably pay taxes anywhere between the range of around 22-27 percent. Within this entire gamut, Sun Pharmaceuticals is one of the lowest taxpayers at around 15 percent in terms of a tax rate. So the biggest beneficiaries from this particular tax cut would definitely be the domestic focused pharmaceutical healthcare companies but the other companies such as Cipla and the others would benefit as well.
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