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Dabur, Marico, Godrej Consumer Products may not avail of corporate tax cut, claims research report

As per the research report, companies such as," Dabur, Marico, and Godrej Consumer Products Limited can maintain a marginal tax rate of 30%. Anyway, the effective tax rate of these companies is below 25.6%".

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Dabur, Marico, Godrej Consumer Products may not avail of corporate tax cut, claims research report
Meanwhile, some FMCG companies may also hold on to the benefits from the tax cuts and not pass them on to customers.

FMCG companies such as Dabur, Marico, Godrej Consumer Products may refuse to avail the corporate tax relief the government has recently announced, according to a Kotak Institutional Equities report.

As per the research report, companies such as," Dabur, Marico, and Godrej Consumer Products Limited can maintain a marginal tax rate of 30%. Anyway, the effective tax rate of these companies is below 25.6%".

"These companies do have the option of moving to the new marginal tax rate of 22 per cent at a later date when the tax exemptions start to expire and a move becomes a better choice," the research report added.

Meanwhile, some FMCG companies may also hold on to the benefits from the tax cuts and not pass them on to customers. In the past companies have passed very small benefits to consumers and retain most of the tax cut for reinvestment, growth and operating stability, the brokerage said.

Moreover, unlike in the case of GST, the government has not specified that companies will have to pass on the benefits to consumers.

As per the brokerage, any reinvestment would be used as a 'fuel for growth or fuel for accelerated premiumisation', ensuring operating profit neutrality.

Kotak said it would expect companies to (a) set up new subsidiaries for any new capacity expansion to avail of this benefit, and (b) get their third-party manufacturing partners to do the same and pass on the benefit.

"While the majority of the benefits will be retained by the companies, a few price reductions here and there are expected," Kotak Institutional Equities said in the reserach note, adding that, "Such moves are unlikely to be dilutive to absolute operating profits".

Sitharaman had recently revised the corporate tax structure and brought it down to 22% and 25.6% marginal and effective tax rates on companies from 30% and 35%, respectively.

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