What The Slower Pace Of Corporate Tax Collections Tells Us

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.

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.