Higher advance tax payments by top 100 firms, better indirect tax collections signal robust economy
October, 03rd 2015
Could the economy be turning a corner? While it's too soon to say that a revival is underway, advance tax payments in September by the top 100 firms were better than what they were a year ago. More importantly, they reflected an improvement — by a factor of 9.09% — in earnings prospects for the full year over June payments, according to data reviewed by ET. Other news has also been positive. The purchasing managers' index for September showed improved manufacturing activity in the second quarter compared with the first.
Core sector data released on Wednesday had provided grounds for optimism, growing 2.6% in August compared with 1.1% in July, pointing to a further bump-up over the 4.2% industrial growth in July. Apart from this, robust indirect tax revenue will likely encourage the Centre to persist with its strategy of accelerated capital spending to kickstart investment in the absence of private involvement. The government spent 40% of its capital budget for the year by August. Not everyone is convinced about a turnaround. The Reserve Bank said on Tuesday that it expects the economy to grow 7.4% in current fiscal against 7.6% projected earlier.
Higher advance tax payments by top 100 firms, better indirect tax collections signal robust economyThe RBI projection came after the economy slowed to 7% in the April-June quarter from 7.5% in the previous one, prompting the central bank to cut its policy rate by a more-than-expected 50 basis points to shore up growth. September advance tax collections stood at Rs 1.41 lakh crore against Rs 1.32 lakh crore in the previous fiscal, up about 7%. June advance tax payments amounted to Rs 43,400 crore. Advance tax is paid in four installments in June, September, December and March. It's based on taxpayers' assessment of projected income and thus gives some indication of corporate performance in the coming months. Typically, the payment is 15% of expected full-year tax by June, 45% by September, 75% by December and full payment in March. Benchmarked against June payments and the prescribed formu la, the payment in September should have been around Rs 1.3 lakh crore. There was a similar jump in advance tax collections last year when GDP (gross domestic prod uct) grew 8.4%. "Industrial recovery, though not buoyant, is seen in some form... These numbers show pickup," said DK Pant, chief economist of India Ratings. What needs to be remembered is that excise duties on automobiles, consumer durables and petroleum were lower last September before the stimulus was withdrawn in January, he said. Companies, he said, may have absorbed some quantum of these higher taxes.
MANUFACTURING OFFERS HOPE
"According to PMI data, the manufacturing sector looks set to provide a stronger contribution to GDP than it did in the April-June quarter," said Pollyanna De Lima, economist at Markit, the agency that compiles PMI. Too much shouldn't be read into the data, said DK Joshi, chief economist, Crisil. "It's a mixed story in India," he said. "Some indicators are positive but others not... There is no convincing evidence of upturn." The higher profits could be due to better margins from lower input costs because of softer crude and commodity prices, better demand or a combination of both. Indirect tax collections, which include excise duty levied at the factory gate, customs duty and service tax, have shown robust growth, holding out hope of a fragile recovery setting in and gaining momentum going forward. This has come amid a rollback of the stimulus and an increase in the levy on petroleum products. The pickup in advance tax payments notwithstanding, overall direct tax collections are well below target and have got the Central Board of Direct Taxes worried. The apex direct taxes body has already held a video conference with chief commissioners and asked them to intensify collection efforts. The direct tax collection target for FY16 is pegged at Rs 7.98 lakh crore, which means a growth surge of 13-14% is needed if this is to be achieved.