Sunil Jain: Tax Advantage

Most know private sector firms are a lot more efficient than public sector ones, but a little bit of perspective is required here. According to data from the latest budget documents, public sector firms, on average, pay around a fifth more effective tax rates in comparison to their private sector counterparts. So, while public sector companies paid an effective tax rate of 25.69 per cent in 2007-08, the figure was a lower 21.28 per cent for private sector firms. The average of 22.24 per cent for all firms, of course, was much lower than the statutory 33.99 per cent. The reason for this is the tax benefits claimed, obviously more by the private sector, particularly for export profits under the Software Technology Parks of India (STPI) scheme (Rs 11,734 crore) and accelerated depreciation (Rs 14,344 crore of taxes were foregone on this account).

 

Effective tax rates also differ quite significantly and across industries you normally wouldn't think of. So, it varies from 16 per cent for units in the power and energy sectors, to17 per cent for pharmaceutical units, to 24 per cent for automobiles, and 30 per cent for engineering goods manufacturers, and 25 per cent for steel — all these industries, you'd think, would be investing enough for them to take the benefit of accelerated depreciation, so the varying effective tax rates is a bit strange. While television companies pay 37 per cent, film producers pay a lower 27 per cent and film laboratories only 7 per cent; consultants pay just 17 per cent while legal professionals pay 40 per cent. Chartered accountants, not surprisingly, pay a low tax rate though, at 20 per cent, it is not as low as you'd expect.