Corporation tax paid by listed companies at 4-year low in Q2 FY25

The recent decline in corporate earnings is likely to cast a shadow on the government’s direct-tax receipts and its fiscal position.

  Tax payment by listed companies was down 7 per cent year-on-year (Y-o-Y) in Q2FY25, their worst showing in the last four years and the first decline in corporate tax in seven quarters.

  The last decline was reported in Q3FY23, when tax payment had shrunk 0.7 per cent Y-o-Y.

  The combined corporate tax outgo of 3,515 companies in the Business Standard sample declined to around Rs 1.09 trillion in July-September 2024 (Q2FY25) from around Rs 1.18 trillion during the same quarter last financial year. It was down 3 per cent quarter-on-quarter from Rs 1.13 trillion during Q1FY25. (See the adjoining chart.)

  A decline in tax outgo by listed companies shows in overall corporate tax collection in FY25 so far. According to the data from the Controller General of Accounts (CGA), the net corporate tax collection of the government was down 8.3 per cent in Q2FY25 to Rs 2.87 trillion from Rs 3.13 trillion in the second quarter of last financial year. However, corporate-tax collection was up 64.1 per cent quarter-on-quarter from Rs 1.75 trillion in Q1FY25.

  The listed companies in the Business Standard sample accounted for 38.3 per cent of corporate tax collection in Q2FY25, up from 37.7 per cent in Q2FY24. In FY24, these listed companies accounted for 47.4 per cent of corporate tax receipts of Rs 9.11 trillion, according to the Union Budget’s Revised Estimates. 

The Union Budget for FY25, presented in July this year, targeted corporate tax receipts of Rs 10.2 trillion in FY25, up 12 per cent from the FY24 Revised Estimates. 

In comparison, listed companies’ tax outgo in our sample is down 0.8 per cent Y-o-Y in the first half of FY25. According to analysts, it would be tough for the tax department to meet the target unless there is a sharp jump in corporate growth and earnings in the second half of FY25. 

“A decline in tax payment by listed companies will weigh on overall tax revenues for this financial year and could change the government fiscal maths. This will also force the government to increase reliance on indirect taxes such as excise, customs and goods and services taxes (GST) and non-tax revenues,” said Dhananjay Sinha, co-head, equities and Head of Research, Systematix Institutional Equity. 

In the Q2FY25, the government’s tax collection was up 3.8 per cent, led by indirect taxes such as excise, customs, and GST, which were up 11.9 per cent Y-o-Y, followed by personal income tax, which was up 6.7 per cent Y-o-Y. Faster growth in indirect taxes is, however, inflationary besides being regressive in nature. Higher indirect tax tends to hit consumer demand, which would adversely affect corporate growth and earnings. 

The decline in corporate tax in Q2FY25 has been attributed to weak corporate earnings and a reduction in the share of corporate profits paid by companies as taxes, also called the effective rate of tax. For example, the combined profits before tax (PBT) by companies in the sample were up 3.2 per cent Y-o-Y to Rs 4.64 trillion in Q2FY25, a sharp deceleration from the 39.6 per cent Y-o-Y growth in Q2FY24. 

The decline in tax outgo was accounted for by a decline in effective tax rates in Q2FY25 over the previous year.

The tax outgo in Q2FY25 translated into an effective corporate income rate of 23.7 per cent (of profits before tax, or PBT), down from the 26.3 per cent in Q2FY24. 

Corporate tax for domestic companies is 25 per cent for FY25, excluding surcharges and cess. For comparison, the effective tax rate for companies in the sample was 23 per cent (of PBT) in Q1FY25 and 23.7 per cent in FY24.