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Government unlikely to meet tax collection targets in current fiscal
March, 19th 2014

A slower-than-estimated growth in advance tax receipts from top companies and individuals in the March quarter indicates the finance ministry is unlikely to meet its ambitious tax collection targets for this fiscal year, according to two income tax department officials.

Advance tax payments made by 16 Mumbai-based companies rose by 13.5% in the three months to 31 March, said the officials, who declined to be identified. The city accounts for about 33% of the nation’s total tax collections.

Companies pay income tax every quarter on their projected earnings and these figures are used as a proxy to estimate financial performance. However, the correlation of earnings with tax paid has at best been mixed.

The country’s largest lender State Bank of India on Tuesday said it paid an advance tax of Rs.1,456 crore for the fourth quarter of fiscal 2014, compared with Rs.1,450 crore in the year-earlier period. State-run refiner Bharat Petroleum Corp. Ltd paid Rs.705 crore for the quarter compared with Rs.230 crore a year ago.

The deadline for payment of advance tax for the fiscal fourth quarter was 18 March.

According to the norms laid down by the Income Tax Act, companies are required to pay 15% of their total advance tax in the first quarter, followed by 30%, 30% and 25% in the next three quarters, respectively.

“The sluggish advance tax payment growth rate mirrors the slowdown in the industrial activity. Though cooling commodity prices and stabilized rupee have extended relief to some companies, it would be a tough task for income tax department to achieve its advance tax targets,” said Devendra Kumar Pant, chief economist at In
photo dia Ratings and Research Pvt. Ltd.

Income tax officials, however, cautioned that growth rate in advance tax payment may change when the department collates the tax data of all 100 firms on Wednesday. They did not disclose more numbers citing sensitivity.

About 1,200 companies pay more than 75% of corporate tax and account for more than 50% of direct tax collections. The budget estimate for corporate tax collection for the financial year is Rs.4.2 trillion, 17.7% more than last year’s corporate tax collection. The total direct tax collection target for 2013-14 is Rs.6.68 trillion, about 19.7% more than last year’s figure.

For the March quarter of the current fiscal year, Yes Bank Ltd paid Rs.200 crore (Rs.167 crore in the year earlier), Bank of Baroda paid Rs.360 crore (Rs.350 crore) and Bank of India paid Rs.500 crore (Rs.790 crore).

Tata Consultancy Services Ltd paid Rs.1,130 crore as advance tax compared with Rs.600 crore in the corresponding quarter of the previous year. Tata Motors Ltd did not pay any advance tax for the March quarter.

A senior income tax official, requesting anonymity, said the profitability prospects of Indian firms are not encouraging for the current quarter, especially for cement companies.

Cement maker ACC Ltd paid Rs.110 crore (Rs.220 crore) and Ambuja Cements Ltd paid Rs.170 crore (Rs.280 crore) as advance tax. According to Mint Research, for 4,219 of the 4,350 listed companies on BSE that have announced their December-quarter earnings, net sales rose 6.29% to Rs.13.9 trillion. However, the net profit of these companies dropped 6.03% to Rs.94,532.91 crore.

The total tax target of the income tax department’s Mumbai circle for 2013-14 is Rs.2.04 trillion. As on 17 March, Mumbai’s tax collection was at Rs.1.63 trillion, compared withRs.1.56 trillion in the corresponding period a year ago.

“We have been given a stiff target, considering that the manufacturing sector is not doing well. The indicative corporate advance tax figures suggest that even banks have not performed well,” said a second tax official, requesting anonymity.

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