The slower pace of India's corporate tax collection growth in FY24 has raised concerns on whether global cues are exerting pressure on India Inc.'s profitability.
While corporate tax collections in FY24 have risen 13% over the same period last year, the percentage of growth has fallen as compared to the same period in the previous fiscal. On the other hand, personal income tax collections have risen as much as 35%, as compared with 23% in the same period last year.
According to tax experts, the slower pace of corporate tax growth indicates a conservative approach where businesses are likely to wait for a real-time stock-taking towards the end of the year.
Direct taxes, such as corporate tax, are paid on a self-assessment basis and not on a consumption basis like Goods and Services Tax, which is an indirect tax. Corporate taxes would require businesses to estimate their income and pay taxes on an instalment basis.
So far in FY24, net direct tax collections came in at Rs 8,65,117 crore. The collections comprised corporate income tax at Rs 4.16 lakh crore and personal income tax, including securities transaction tax, at Rs 4.47 lakh crore—both net of refunds.
In the corresponding period in FY23, net collections stood at Rs 7 lakh crore as of Sept. 17, 2022, with corporate income tax at Rs 3.68 lakh crore and personal income tax at Rs 3.30 lakh crore.
Amit Singhania, a partner at Shardul Amarchand Mangaldas and Co., said that while the rise in personal income tax could be attributable to dividend declaration, the profitability of the corporate sector is facing some challenges due to global recessionary trends, which is impacting their tax payout.
“They (India Inc.) don’t survive in isolation. Global cues are slowing down Indian growth and consequently, corporate profitability is also likely to slow down … But these numbers are not that pessimistic, they are still encouraging numbers when compared to other global economies where corporates are facing similar conditions,” he told BQ Prime.
The Reserve Bank of India expects the Indian economy to grow at 6.5% in FY24, while the World Bank and IMF expect it to be at 6.3% and 6.1%, respectively.
Rise in personal taxes
The collection figures with respect to the budgetary target are significantly better for personal income tax, achieving close to 50% of its budgetary target of Rs 9 lakh crore, according to Kuldip Kumar, a partner at Mainstay Tax Advisors.
The buoyancy could be attributed to various factors, such as better compliance, a market that is at an all-time high, and a high net worth among tax payers, among other reasons, he told BQ Prime. "This year, the number of promoters selling their stake in terms of absolute numbers is double what it was last year," he said.
Kumar believes corporate tax growth will catch up at the end of Q2.
"The personal tax filing cycle is over, although those running their businesses who are subject to audit requirements are still required to file their returns. Corporate tax filing season will end this quarter, and we could see catch-up action in corporate tax collections going forward," he said.
While it might be too early to assess the impact to budgetary estimates of tax collections, it is evidence that businesses are being conservative with their tax payments and waiting to see how the rest of the year pans out, Singhania said.
So far, the central government has achieved 46% of its budgetary direct tax target of Rs 18.23 lakh crore.
The trend could also point to narrowing margin owing to the price fluctuation of global commodity prices with sectors like mining, metals, oil and gas likely to have felt pressure as a direct consequence.
Also Read: Is India Inc.'s Profit Growth Slowing Down?
RECOMMENDED FOR YOU
Colgate India To Appeal Rs 254.27 Crore Income Tax Demand
Oct 29, 2024
India's Direct Tax Collections Surges 182% In 10 Years To Over Rs 19.6 Lakh Crore in FY24
Oct 17, 2024
India's Net Tax Collection Grows 18% To Rs 11.26 Lakh Crore So Far This Fiscal
Oct 11, 2024
GST Mop-Up Slips 40-Month Low In September
Oct 01, 2024
POPULAR