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.

The tax cut is a positive surprise for oil PSUs as there was an expectation of a divestment announcement.

The sector is reeling under a lot of taxes. Infact, recently ONGC in its annual report said that taxes on domestically produced oil is limiting its earnings performance. The upstream companies pay a hefty tax, especially Oil India that has a tax rate of 40 percent and is expected to benefit the most. ONGC has an approximate tax rate of 33 percent.

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The oil marketing companies will also benefit post this move. Remember, they have also been trading at 40 percent below long-term averages and approximately 25 percent below global peers. Therefore, the tax cut will definitely give some valuation support.

Similarly, gas majors will also get some breathing room as the average effective tax rates in the sector is around 33-35 percent.

It’s important to note that these companies are charged with a lot of indirect taxes such as cess, royalties and excise duty as oil and gas sector is still not under GST.

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Reliance will see minimal gains, as they are pay 28 percent tax and thus the effective gain will not be big.

First Published:Sept 23, 2019 2:10 PM IST