Tepid growth in Q1 corporation tax collections

Corporation tax collections grew by a mere 2% between April 1 and June 18 year-on-year, indicating a sluggish economic recovery.

Corporation tax yielded Rs 55,000 crore in this period, a finance ministry official told Business Standard. Experts said poor corporation tax collection growth reflects persistently weak profitability and output, besides sluggish demand in the economy.

While direct tax collections posted a 22% growth at Rs 1.2 lakh crore, it could be attributed to buoyant growth in personal income tax because of change in the advance tax collection rules. Of the total direct tax collections, Rs 64,000 crore came from personal income tax, representing a growth of 48%.

The official said while 22% growth in direct taxes was unusually high for Q1, corporation tax growth of 2% was unusually low. “Corporation tax growth in the first quarter has been unusually low. This indicates that all is still not well with the corporate side of economy,” said the official.

Although not comparable, corporation tax collections grew by 10.5% during April-August, 2015-16 year-on-year.

Other economic indicators also do not paint a very happy picture.The index of industrial production contracted 0.8% in April, dragged by the manufacturing sector which fell by 3.1% over the same month in 2015.

India’s economy grew 7.6% in 2015-16 from 7.2% in the previous year, outpacing China. However, the numbers have come under scanner for disconnect with other economic indicators. The government expects gross domestic product to be in the range of 7-7.75% in the current financial year.

“The tepid 2% corporation tax collection growth indicates that volume growth remains weak, corporate profitability numbers are yet to pick up and demand remains sluggish,” said Soumya Kanti Ghosh, chief economic advisor, SBI.

He added that the SBI index shows further decline in profitability of companies between April and June. “IIP is also expected to remain in the negative territory in May,” Ghosh added.

The high personal income tax growth was on account of the new rules which require non-corporate to also pay 15% advance tax by June 15, against 30% by September 15.

“The 48% growth in personal income tax in Q1 is due to base effect, as last year we didn’t see any advance taxes paid by non-corporate in June. The exchequer has basically received some bit of the September share,” the official explained.

Of total direct tax collections, Rs 52,000 crore came from advance taxes. Advance personal income tax collections stood at Rs 6,000 crore in Q1. The government increased income tax compliance burden on individual tax payers by making advance tax payable from June 15 instead of September 15 earlier. Now, individuals have to estimate income tax payable for full financial year and pay 15% of that in Q1, or else pay 1% interest for each month of delay.

Earlier, individuals were liable to pay 30% advance tax by September 15, 60% by December 15 and 100% by March 15. Advance tax means paying tax as and when the money is earned, rather than waiting for the end of the financial year.

Overall advance tax collections in the first quarter, which are expected to be about 15% of the full year tax liability, posted an 18% growth. The high direct tax collection growth was despite 23% higher refunds issued by the government, said the official.

In the previous financial year, while indirect tax collections exceeded revised estimates by Rs 9,885 crore, direct tax mop up fell short by Rs 4,000 crore over RE. The indirect tax revenues stood at Rs 7.11 lakh crore and direct tax collection came in at Rs 7.48 lakh crore. Direct tax realisation was 7.61% higher than 2014-15 receipts.

The government has targeted direct tax collections at Rs 8.47 lakh crore during 2016-17, which would be over 15% rise over actual mop up in the previous financial year. Corporation tax is targeted to grow 8.8% to Rs 4.93 lakh crore over RE of 4.52 lakh crore for the previous financial year. Personal income tax, on the other hand, is budgeted to rise to over 20% at Rs 3.53 lakh crore in the current financial year over RE of Rs 2.99 lakh crore during 2014-15.