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Tax collections may fall short of target this fiscal year
June, 15th 2013

Finance and banking companies are likely to pay 5-10% more advance tax for the first quarter of the current fiscal, but the overall trend suggests that total tax collections for the full fiscal year are likely to fall short of target—worrying news for a finance minister that’s trying to rein in its fiscal deficit.

Indicative advance tax payment numbers by the 25 top firms show an increase of 20.96% over last year, said income-tax (I-T) officials on condition of anonymity. A clearer picture will emerge when more companies pay advance tax, the last date for which is 15 June.

Indian companies pay advance tax a fortnight before the end of every quarter on projected earnings and these numbers are seen by analysts as a reflection of their financial performance. 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.
“We need a growth of 19% to achieve the overall target. But it looks difficult at this point of time. However, financial institutions and banking companies are likely to pay 5-10% more,” said one of the income tax department officials cited above.

About 1,200 companies pay more than 75% of corporate tax and account for more than 50% of direct tax collections.

Finance minister P. Chidambaram is bidding to rein in the fiscal deficit to 4.8% of gross domestic product (GDP) this year from 5.2% last year, with increased tax collections playing a key role in the exercise. India’s economy is seen recovering this fiscal from decade-low growth of 5% last year.

The budget estimate for corporate tax collection for the financial year is Rs.4,19,520 crore, 17.71% more than last year’s corporate tax collection. The total direct tax collection target for financial year 2013-14 is Rs.6,68,109 crore, about 19.69% more than last year’s figure.

Although the finance minister on Thursday expressed confidence that the government will not have to go in for expenditure compression to meet its fiscal deficit target, analysts are sceptical of the government meeting its revenue targets.

“This year the problem will be more in revenue rather than expenditure. Besides tax revenues, the government has taken a huge gamble with respect to revenues from spectrum auction and disinvestment, which are dependent on external factors,” said Madan Sabnavis, chief economist at CARE Ratings. “...the government may have no option but to look at expenditure compression this year also to meet the fiscal deficit targets.”

Housing Development Finance Corp. Ltd (HDFC) paid Rs.360 crore compared with Rs.300 crore in the year-ago quarter. Yes Bank Ltd paid Rs.104 crore, up from Rs.75 crore. HDFC Bank Ltd paid Rs.685 crore, compared with Rs.500 crore a year ago.

According to figures given by tax officials, the country’s second biggest bank, ICICI Bank Ltd, paid Rs.600 crore for the reporting quarter against Rs.500 crore. They added that Bank of Baroda paid Rs.325 crore (Rs.300 crore last year), Dena Bank Rs.110 crore (Rs.80 crore), Kotak Mahindra Bank Ltd Rs.110 crore (Rs.75 crore), Accenture India Rs.33 crore (Rs.28 crore), Lafarge India Rs.25 crore (Rs.25 crore) and ITC Ltd Rs.385 crore (Rs.315 crore). Mangalore Refinery and Petrochemicals Ltd isn’t expected to pay advance tax.

Life Insurance Corporation of India paid Rs.679 crore (Rs.638 crore), Tata Steel Ltd Rs.270 crore (Rs.270 crore) and Mahindra and Mahindra Ltd Rs.120 crore (Rs.90 crore).
Details of the highest tax paying firms, State Bank of India and Reliance Industries Ltd, aren’t known at this point of time.

HDFC and Yes Bank confirmed the tax payments, while the other firms could not immediately be contacted for comment.

The gloomy tax outlook comes a day after Chidambaram sought to rally investor sentiment by promising a fresh round of policy initiatives to stimulate economic activity.
The World Bank on Thursday cut its global forecast for 2013 on the back of slower growth projections for emerging economies such as China and India, and a prolonged contraction in Europe. In a report, the bank said the world economy will expand 2.2%, less than a January forecast for 2.4% growth and slower than last year’s 2.3%. While India’s growth projection was lowered to 5.7% from 6.1%, China’s growth outlook was cut to 7.7% from 8.4%.

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