The Indian government is leaving no stone unturned to promote ease of doing business by reducing corporate tax rates and a slew of other measures that promise to boost economic activity in the country. It is a move that will lure the investors to bring in new projects which will lead to a surge in employment, promote manufacturing growth, and spur consumption. (The government slashed corporate tax rates for existing companies by almost 10 percent to 25.17 percent, to bring them at par with Asian rivals such as China and South Korea. The government had also reduced corporate tax to 15% from 25% for new manufacturing companies).
Metal stocks may not be able to see any benefit in the short term. Most of the metal companies may prefer to stick to the existing tax rates due to the existing tax benefits. Even if the companies opt to shift to the new slab, the profit will be minimal. Mostly steel producing companies have garnered losses in the past and have been paying tax according to MAT(Minimum Alternate Tax). Many companies including Tata Steel, JSW Steel, and Vedanta will also add losses owing to their recent acquisitions. Major steel companies also get tax benefits from the expansions done over the past few years.
Thus steel companies will analyze the benefits before shifting to the new tax rate, including one-time gain on deferred tax liabilities adjustment.
