Moody's Investors Service on Saturday said cut in corporate tax increases government's fiscal risks while hewinds from cyclical factors such as rural stress, weak corporate sentiment and slow credit pose threat to near-term growth. On Friday, Centre anunced a reduction in base corporation tax rate to 22 per cent from 30 per cent as part of stimulus measures to revive slowing ecomic growth.

"t expecting cuts to revive growth"

rating ncy said it does t expect corporate tax rate cut to revive growth to extent that stronger tax buoyancy compensates for loss of revenue. "While reduction brings India's corporate tax rate closer to peers throughout Asia and will support business environment and competitiveness, a host of cyclical factors, including rural financial stress, weak corporate sentiment, and a slow flow of credit in financial sector, remain hewinds to near-term growth," it said.

RE | US corporate sector hails India's move to slash tax rate for companies

Moody's said cut in corporate tax is credit positive for companies because it will enable m to generate higher post-tax incomes. "However, it is credit negative for sovereign, as it aggravates mounting risks for government in meeting its fiscal deficit target."

RE | GST Council: Tax on caffeinated drinks hiked, hotel tariffs reduced

IT companies to benefit most

Commodity and information techlogy (IT) services companies will benefit most from tax rate cut. "But degree of strengning in corporate credit profiles will depend on wher companies reinvest surplus earnings into ir businesses, or use m to reduce debt or to boost shareholder returns," it said.

RE | Baba Ramdev calls corporate tax slash an "ecomic revolution"

In aggregate, rated n-financial companies in India reported a total pre-tax net income of about USD 35 billion for fiscal year ended March 2019. Assuming earnings of se companies remain unchanged for current fiscal, y will save about USD 3 billion from tax rate reduction?.

" central government deficit target of 3.3 per cent of GDP in fiscal 2019 alrey assumes faster ecomic growth and higher tax buoyancy than we expect," it said. July budget projected total corporate tax revenue of Rs 7.7 lakh crore (around 4 per cent of GDP), and finance minister estimated that decrease in corporate tax rate will reduce revenue by around Rs 1.45 lakh crore in current fiscal year.

RE | Sensex soars 1900 points post corporate tax rate cut by FM Sitharaman

"As such, reduction in corporate income tax revenue even when balanced against windfall from recent transfer of central bank surplus reserves, equivalent to around 0.3 per cent of GDP in current fiscal year furr narrows fiscal room for maeuvre," it said. Moody's said this assumes that government does t cut expenditure to offset revenue loss.