Listed companies paid a little less than a third of corporate tax in FY18

Tax outgo for listed companies grew even slower at a CAGR of 5% during the period

Listed companies are becoming less important for the income-tax (I-T) department with each passing year. In 2017-18 (FY18), they accounted for a little less than a third of the corporate I-T, down from nearly 40 per cent in 2016-17 and 49 per cent a decade ago.

India’s top listed companies paid Rs 1.88 trillion in direct taxes in FY18, against total corporate tax receipts of Rs 5.71 trillion. According to the I-T department, total corporate tax receipts were up 17.8 per cent on a year-on-year (YoY) basis last fiscal year, against a 0.6 per cent decline in the tax outgo of the country’s top 868 listed companies across sectors.

This was in line with the poor profitability of listed companies. Their pre-tax profits were down 9.6 per cent YoY in FY18.

The analysis is based on a common sample of companies that are either from the BSE500, BSE Mid-cap or BSE Small-cap index. The sample firms accounted for 84 per cent and 93 per cent of the combined net sales and net profit of all listed firms, respectively, in FY18. According to the tax department, total corporate tax collections have grown at a compound annual growth rate of 9.9 per cent from Rs 3.56 trillion in FY13 to Rs 5.71 trillion in FY18. 

In the same period, listed companies’ direct tax outflow expanded at 5 per cent CAGR from Rs 1.48 trillion in FY13 to Rs 1.88 trillion in FY18. This is an annualised growth rate of nearly 13 per cent in the tax outgo of unlisted firms. The data also hints at a wedge between corporate tax collection and the underlying growth in India’s GDP at current prices. In the past five years, GDP grew at a CAGR of 11 per cent against 9.9 per cent growth in corporate taxes. 

Tax outgo for listed companies grew even slower at a CAGR of 5 per cent during the period. A similar trend is visible over a 10-year period. Overall corporate tax collections were, however, up 17.8 per cent YoY in FY18, according to the I-T department, against 10 per cent growth in GDP at current prices.

Experts attribute this to poor growth in corporate earnings despite an uptick in the headline economic growth in last few years. 

“Corporate earnings have generally been under pressure in last few years either because  of poor revenue growth or decline in corporate margins. This is what the income tax data captures,” said Madan Sabnavis, chief economist, CARE Ratings.

Others point to key sectors such as power, infrastructure, metals and corporate banking. “Even as the economy continues to grow, growth and profitability remains a challenge in many of the core sectors, hurting corporate tax collections,” said Devendra Pant, head economist India Ratings. Corporate tax collections have done better than underlying growth in corporate earnings. For example, listed firms’ combined pre-tax profits have grown at a CAGR of 1.5 per cent in the last five years while their direct tax outgo grew at 5 per cent annually.

Analysts attribute this to a steady rise in effective corporate tax rate in recent years. 

“The corporate tax rates have risen in recent years forcing companies to pay a greater share of their pre-tax profits,” said Dhananjay Sinha, head, research, Emkay Global Financial Services. The tax data suggests that the space of unlisted companies is now more than twice the universe of listed companies in terms of profits and tax contribution. Unlisted companies also seem to be profitable and their earnings are growing at a much faster clip than that of their listed peers.