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Advance tax mop-up signals slowdown
August, 09th 2008

Call it early signs of an economic slowdown. The growth of advance corporate tax collection in the first four months of FY09 vis--vis the corresponding period last fiscal slipped by almost half from 35% to 18%. For some in India Inc, their advance tax payment has actually entered into a negative zone this year. However, there have been some exceptions such as GAIL and BSNL which posted a phenomenal growth of 142% and 197%, respectively.

If the low growth in advance tax collection continues till September 15, when corporate assessees need to pay 45% of the advance tax and non-corporate assessees 30%, it could be safely attributed to the economic slowdown. Till now, companies such as Gujarat Ambuja, Bharti Airtel, Grasim Industries, JSW Steel, ACC, Bajaj Auto, Hero Honda and National Thermal Power Corporation (NTPC) have paid less advance tax, compared to the same period last fiscal. Even for companies such as ITC and SAIL, the advance tax payment this year was only marginally higher than last year. Corporate assessees need to pay 15% of their advance tax by June 15 every year.

In fact, advance tax collection, including late payments till July 31, 2008, stood at Rs 23,500 crore, up merely 18% from Rs 19,900 crore received during the same period last fiscal, according to the data available with the Central Board of Direct Taxes (CBDT). The growth has been below expectations as advance tax collection in the same period last year registered a growth of whopping 35%.

A top CBDT official told SundayET: Advance tax collection has been below our estimates this year. In case of top 10 corporate assesses such as ONGC, SBI, NMDC, Reliance Industries, GAIL and BSNL, the growth was up by 40%. But many big and mid-sized companies paid much less than what they paid during the same period last fiscal and that brought down the growth figure. It could well be because of the current economic slowdown.

The net direct tax collections in the first four months of the current fiscal was, however, impressive at Rs 71,648 crore, up from Rs 48,756 crore, a growth of 47%. This figure, however, includes fringe benefit tax (FBT), securities transaction tax (STT), banking cash transaction tax (BCTT) and tax deducted at source (TDS) in addition to advance tax.

Videocon Industries chairman V N Dhoot admitted that corporate India has already estimated that profits during this fiscal cannot be the same as last year. Because of the tightening monetary measures this year, demand will naturally slow down. We cant escape the global slowdown. Hence, India Incs profits cant be as robust as last year. And if corporate profits go down, tax liabilities will obviously be less, he said.

Though the growth story of many top companies seems to have been intact despite the current economic downturn, many corporate biggies have already factored in the poor economic health this year. The advance tax paid by Gujarat Ambuja in June, for example, was Rs 100 crore compared to Rs 120 crore during the same period last year, a dip of 16%. Whereas for Grasim, it was a 30% fall from Rs 91 crore to Rs 70 crore and a decrease of 13% for ACC. For Bharti Airtel, the fall was steep at 51% (from Rs 147 crore to Rs 72 crore). Interestingly, Indian Oil, which paid Rs 3,070 crore advance tax during the entire year, has paid no tax till now.

Gaurav Taneja, partner, Ernst & Young, termed the low growth of advance tax collection as a fallout of the current slowdown. Its not surprising to find a moderate growth in advance tax collection. The slowdown has been showing up in company results this fiscal. You cant expect margins to be very high. As potential profits of companies are likely to be hit this year, you will see low advance tax collection right from the first instalment, he said.

Thanks to inflation and the high interest rate regime, auto and banking sectors could be the worst hit, say analysts. Whereas advance tax payments by Bajaj Auto saw a dip of 16%, for Hero Motors it was a fall of 11%, the data compiled by CBDT said. Even among the top 10 corporate assesses, steel major SAILs growth in advance tax till now this year was marginally up by 1.56% whereas for Reliance Industries (RIL) the growth was 15.25%. Two companies among the top 10 which actually bucked the recessionary trend were GAIL (an increase of 142%) and BSNL (197%).

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