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Firms pay lower advance tax in first quarter
June, 21st 2012

Advance tax payments by Indian companies grew by less than 5% in the first quarter of the current fiscal, in a further indication that an economic slowdown is affecting corporate earnings and adversely impacting revenue collections.

Though tax department officials said first-quarter numbers are not enough to confirm a trend, this almost flat growth in advance tax numbers will make it difficult for the government to meet its 15% growth in direct tax collection targets in the current fiscal.

First quarter advance tax collections grew 4.5% to Rs. 33,086 crore, compared with Rs. 31,631 crore in the year-ago period, tax department data show. The growth in advance tax collections in the same period last year was around 19%.


Advance tax payments by the top 100 corporates in the first quarter also project a similar picture. Combined advance tax payment by the top 100 Indian companies was Rs. 17,893 crore, a growth of 5.33% from Rs. 16,987 in the year-ago period.
The government is targeting to garner Rs. 5.7 trillion in direct taxes, a growth of more than 15% over tax collections a year ago.

One should not read much into the first-quarter advance tax numbers. It is based on a rough estimation of earnings by corporates. But given the current economic scenario, there could be some slowdown in corporate tax collections, said an income tax department official, who declined to be named.

Indias gross domestic product (GDP) grew by only 5.3% in the three months ended 31 Marchthe slowest in nine yearsand brought down growth in fiscal 2012 to 6.5%, compared with 8.4% in the year before. GDP growth in the current fiscal is expected to be around 6.5-7%, making it difficult for the government to meet revenue-collection targets.

Indian companies pay advance tax a fortnight before the end of every quarter on their projected earnings. In line with the Income-tax (I-T) 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.

Keeping in mind the current refund figures and that given in the same period last year, the growth in corporate tax collection will be negative, signalling a slowdown, said another I-T official, who also spoke on condition of anonymity.

With the advance tax payments coming in, total net direct tax collections stood at around Rs. 84,000 crore, up 40% from the year-ago period. But this growth was mainly due to a substantial dip in refunds. Refunds were down at Rs. 21,000 crore from Rs. 40,000 crore. Gross tax collections stood at Rs. 1.05 trillion compared with Rs. 1 trillion over the same period last year.

Direct tax collections, especially corporate tax collections, have borne the major brunt of the slowdown in the economy. In 2011-12, the government managed to garner only Rs. 4.95 trillion in direct taxes against a budget estimate of Rs. 5.32 trillion.

It is critical to understand that advance tax numbers cant be considered to be conclusive evidence of economic trends because tax collection is a result of variables like the taxation rates as well as liquidity, said Ritika Mankar, economist at financial services firm Ambit Capital Pvt. Ltd. But, having said that, we feel the overall growth momentum is weak and we are looking at growth of 6.6% this fiscal.

Finance secretary R.S. Gujral had at a recent event directed the income-tax department to focus more on sectors benefiting from the rapidly growing consumer economy to boost tax collections. These sectors include consumer goods, two-wheelers and cement.

 
 
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