Corporate tax rate cut: 'Single biggest tax reform', says L&T's SN Subrahmanyan; Rajiv Bajaj calls it 'outstanding' in long-term

The government slashed corporate tax to 22% without exemptions or incentives for domestic and new manufacturing companies

FP Staff September 23, 2019 13:53:18 IST
Corporate tax rate cut:  'Single biggest tax reform', says L&T's SN Subrahmanyan; Rajiv Bajaj calls it 'outstanding' in long-term
  • Nirmala Sitharaman's announcement to cut corporate tax to 22% without exemptions or incentives for domestic, new manufacturing companies has been hailed by corporates

  • If the FM has taken care of [Bajaj Auto's] entire marketing budget for the quarter; I don't think that is small, said Rajiv Bajaj

  • Let us see all the positives in it at the moment; it is a fantastic stimulant, said SN Subrahmanyan of L&T

Finance Minister Nirmala Sitharaman's announcement to cut corporate tax to 22 percent without exemptions or incentives for the domestic and new manufacturing companies has been hailed by Rajiv Bajaj, Managing Director, Bajaj Auto and S N Subrahmanyan, CEO and MD Larsen and Toubro.

Companies opting for 22 percent income tax slab won't have to pay minimum alternative tax and after considering surcharges and cess, the effective tax rate will be 25.17 percent, said Nirmala Sitharaman.

In an exclusive interview with CNBC-TV18, Bajaj said, Rajiv Bajaj, managing director of Bajaj Auto, said:

“This has been extremely positive. As much as everyone else has also said, this is outstanding for the long-term and that was always my contention that whatever is done should be done for long-term competitiveness and to make strong companies even stronger. So with this kind of a windfall, the ability of a company like Bajaj to invest in technology for the future, electric vehicles (EVs), in particular is bolstered. You will see in a matter of weeks the impact of that,” Bajaj said.

Corporate tax rate cut  Single biggest tax reform says LTs SN Subrahmanyan Rajiv Bajaj calls it outstanding in longterm

Rajiv Bajaj, MD, Bajaj Auto. Reuters

“I have no argument with the math that RC Bhargava [chairman of Maruti Suzuki] or Pawan Goenka [managing director of Mahindra and Mahindra (M&M)] has presented. That is absolutely perfect but there is another way to look at it also. Bajaj has put out a very aggressive festive offer and in one stroke, the FM has reimbursed to us all the money that we are putting out both in terms of a consumer offer and also the media spend that is behind it. So if you look at it that way, it is not insignificant. Let me finish by saying that we had already planned to do this and the tax rate will not take care of anything that EBITDA dilutive.

"So as a prudent company, we have budgeted ourselves keeping an eye on our EBITDA but ultimately, your ability to pay out dividends or your ability to invest in the future depends on what you make after-tax. So if the FM has taken care of your entire marketing budget for the quarter, I don’t think that is small,” Bajaj added.

Meanwhile, SN Subrahmanyan, CEO and MD, L&T, told CNBC-TV18 in an exclusive interview that what Sitharaman and the government has done is probably the 'single biggest tax reform'. "This is a fantastic moment from all points of view. This is a transformational intent and the content out of it would be multifarious and reactions would be numerous from many points of view. Something like this is required by the private sector because last three-four years we have been lacking private sector investments for various reasons. therefore, in some manner, ensuring that the private profit and loss (P&L) gets back into shape to give credit back into the private sector P&L accounts and to have cash flows in a very positive manner is very important,” he added.

“There would be a lot of positive effects due to this, may not be immediate but it will happen over a period of time which is what all the stimulus does. Therefore L&T will also benefit. We need to get into the details because there are other aspects to it. Therefore, one has to straighten that out before finally arriving at what would be the net number. Let us see all the positives in it at the moment. It is a fantastic stimulant from that point of view,” he added.

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