National   

Corporate India has no reason to sulk

Bangalore: Corporate India’s reaction to the Union budget has focused on two issues. While grudgingly accepting the “political compulsions” of the loan waiver scheme for farmers, it has generally characterised the budget as not having shown it any special favours.

In particular, sections of big business have pointed out that there has been no relief from Corporation Tax, and that surcharges on tax, if not scrapped altogether, have not even been reduced. Is there merit in the claim that the budget has no “incentives” for industry?

Hidden in the maze of the budget documents, embedded as an annexure to the Receipts Budget for 2008-09, is a statement which shows the revenue forgone by the government in 2006-07 and 2007-08 because of tax exemptions granted to different segments of taxpayers.

This is the third year such a statement has been included in the papers, and is a welcome feature because it makes the budget more transparent by clearly showing which sections of taxpayers have gained as a result of the incentives offered by the government.

Tax incentives, typically given in the form of exemptions from tax, are in some sense also “subsidy payments to preferred taxpayers.”

They also imply a cost borne by the government in terms of lost revenues that would have otherwise accrued to it in the absence of the incentives.

An analysis of tax filings by 3.28 lakh corporate entities up to December 31, 2008, constituting about 90 per cent of the expected filings in 2007-08, throws up some interesting results.

The aggregate profit before tax (PBT) of the “sample” companies amounted to Rs.5.56 lakh crore, but their taxable income was Rs.3.42 lakh crore. These companies paid Rs.1.14 lakh crore as corporate tax, implying an effective tax rate of 20.6 per cent, which is significantly lower than the statutory tax rate of 33.66 per cent.

More significantly, the analysis made in the statement reveals the regressive nature of the corporate tax structure. More than half the reporting companies, with profits up to Rs. 1 crore each in 2006-07, suffered an effective tax rate of 25.40 per cent. By contrast, larger companies, with profits of between Rs.50 crore and Rs.500 crore, suffered an effective rate of only a little over 19 per cent. These companies accounted for merely one per cent of all companies that filed returns.

It turns out that the companies with the lowest profit levels suffered the highest tax rates. The statement also backs the view that public sector companies are more diligent taxpayers. The effective tax rate of these companies was 23.35, almost four percentage points above those of private companies.

This year, the most adverse reactions to the budget have come from sections of the Information and Technology industry, particularly the IT-enabled Services (ITeS) and BPO segments, and the software industry. In particular, they have demanded the extension of incentives that are to end in financial year 2008-09. How legitimate is this demand, considering that the government has to balance different sectional interests, while appearing to be fair to all?

The ITeS and BPO industries together suffered an effective tax rate of 7.36 per cent, while companies in the business of software development suffered an effective tax rate of 6.38 per cent. Together, these two segments of industry paid only 2.08 per cent of all taxes paid, but their profits amounted to 6.18 per cent of all profits by companies. To put these tax rates in perspective, the tax rates actually applicable to these two segments was among the lowest of all sections of industry, barring agro-based industries.

A lot has been said about the magnitude of the loan waiver package, amounting to Rs.60,000 crore, including the one-time-settlement to larger farmers. But how does it stack up against revenue forgone because of incentives offered to different segments of taxpayers?

But first, how much has the public exchequer “lost” because of incentives to corporate taxpayers? In 2007-08, the “losses” are expected to be Rs.58,655 crore, increasing by 30 per cent over the previous year. The revenue forgone in the case of non-corporate taxpayers — mainly partnership firms, Association of Persons and Body of Individuals — is expected to be a little over Rs.4,000 crore in 2007-08.

The “losses” due to concessions extended to individual taxpayers in last year’s budget amounted to about Rs.38,000 crore, an increase of 30 per cent over 2006-07. The “losses” due to excise duty concessions amounted to about Rs. 88,000 crore in 2007-08 while revenues forgone due to changes in customs duties amounted to Rs.1.48 lakh crore.

In all, the aggregate revenues forgone because of corporate incentives in 2007-08 are expected to reach a staggering Rs.2.79 lakh crore. Put simply, this waiver amounts to one half of all taxes collected by the government in 2007-08. It is in the context of this enormous write-off to corporate India that the crop loan waiver package to farmers of a relatively modest Rs 60,000 crore must be seen.

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

Congress plans rallies in six States
Fresh violence in Nandigram
Six injured in Nandigram violence
Corporate India has no reason to sulk
Budget blues for lay PC buyers
Taslima’s visa should not be extended: clerics
Trouble looms over Ghising’s resignation
Congress may back Mamata
All set for poll
Court upholds dismissal of teacher
Paswan: duty cut on drugs a major relief to common man
Antony’s police escort loses way
RBI staff strike on March 12

Copyright © 2008, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu