Corporates Signal Turnaround, Pay Higher Advance Tax

Corporation tax up at 16% Income tax up at 10%

Led by higher advance tax payments, direct tax collections at the end of September have topped the collection last year, reflecting the upturn corporate India expects in the second half of the current year.

This is surprising as the overall investment climate has been gloomy and the government has lately been under pressure to initiate a turnaround in the economy. A lot is expected from the government in the busy-season credit policy.

According to the latest chalans (tax payment receipts) filed up to September 28, the income tax collection is 10 per cent higher at Rs 8,944 crore and corporation tax 16 per cent higher at Rs 8,265 crore.

Revenue department officials explained that the net collection data varied on account of refunds. In fact, as on September 24, the rate was 10 per cent for both corporation and income tax. The second instalment of advance tax payments was due on September 15.

The companies that paid higher advance tax in the latest instalment, due on September 15, include several autmobile firms like Hero Honda, Maruti Udyog Ltd and LML. In other sectors, the revenue department reports higher advance tax receipts from both domestic and foreign banks, who are reporting excellent performance in the current year.

Analysing the current data trends, the revenue department officials said it was a clear indication that corporates were anticipating a sharp upswing, starting in the festival season, in the second half. They would not pay higher advance tax otherwise. It entails an opportunity cost for them, said an official.

Revenue officials further pointed out that if the sharp cut about 30 per cent for corporation tax in tax rates is taken into account, the revenue buoyancy is much greater than reflected in the data.

This is because, despite the sharp drop in tax rates, the revenue department is seeing collection above last years levels which were at a much higher rate. With the rate cut factored in, the notional corporation tax collection rate would work out to about 46 per cent.

Our collections are above last years trends. While a corporate revival can be read in the advance tax payments, we also take it as an additional challenge that we have to meet revenue targets despite lower rates, a senior official in the revenue department said.

In 1996-97, at the end of September, corporation tax collections stood at Rs 7,125 crore and income tax collections at Rs 8,131 crore.

They further pointed out that at a meeting held last week, before revenue secretary N K Singh left for Vienna, the Central Board of Direct Taxes had on the basis of the latest collection trends expressed confidence that the target of a 20 per cent growth in collections for the year could be met.