BackHUL to set up new manufacturing arm, move to help co avail lower 15% tax
HUL sells packaged goods including foods and refreshments, personal and beauty care products, and home care brandsThe new subsidiary will help HUL avail benefits of the lowered tax burden on manufacturers
PremiumNEW DELHI : India’s top packaged consumer goods company, Hindustan Unilever Ltd (HUL), on Monday announced plans to set up a new subsidiary in India that will be engaged in manufacturing activities and leverage growth opportunities in the country. The new manufacturing entity will help the company avail benefits of a recent tax provision that puts a lowered tax burden on entities engaged in manufacturing.
In a filing to the stock exchanges on Monday, HUL said that “the Board of Directors of Hindustan Unilever Limited (HUL) today approved a proposal to form a new 100% subsidiary of Hindustan Unilever Limited. This company will be incorporated with an authorised share capital of ₹2,000 crore."
In September last year, India’s finance minister slashed basic corporate tax rate to 22% from 30%; while for new manufacturing companies it was reduced to 15% from the previous 25%. This is applicable for new manufacturing companies that start production before March 2023, and incorporated on or after 1st October 2019.
In the first phase—the company that sells popular brands such as Dove shampoo, Lux soap, and Kissan jams—will invest ₹500 crore to ₹800 crore, Srinivas Phatak, the company’s executive director, finance and IT, and chief financial officer, told Mint.
“In the whole Make-in-India initiative—the government is encouraging stepping up of investment levels and to facilitate this they had amended the income tax law sometime back and given a provision—where if you set up a new company you will get a corporate tax at the rate of 15% versus the higher tax rate which is there for existing companies," Phatak said.
“The new subsidiary has been formed to leverage the growth opportunities in a fast-changing business environment and will help HUL in becoming more agile and customer-focused," the company added in the filing.
Phatak did not divulge details on the categories where HUL will step up investments in manufacturing here. “The company is being set up with an authorised capital of Rs2,000 crore, obviously we will go step-by-step. In phase one, we are looking to invest between Rs500 and Rs800 crore in our existing categories but at this stage we are not calling out the categories or where we are investing," he said.
HUL sells packaged goods including foods and refreshments, personal and beauty care products, and home care brands. Phatak said that for HUL, India’s consumer goods market continues to be an attractive opportunity, and the company is committed to investing in it.
This, he added, will continue to require capacities for growth, highlighting the need to set up the new subsidiary. Phatak also added that the Indian government is pushing companies to invest more in its staple manufacturing Make in India initiative. “When you combine the two (lowered taxes and push for local manufacturing) it actually enables us to make investments higher than what we could have earlier done because the business case becomes more attractive with a lower corporate tax rate," he said.
For the year ended March 2019, HUL posted revenues of ₹38,224 crore.
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