Banking, pharma sectors do not live up to the expectation

If the trends in corporate tax collections are anything to go by, big players in banking and pharma sectors in the state have shown a dismal performance in 2004-05 for varied reasons.

The most significant and unexpected is the case of the State Bank of Hyderabad (SBH), which is learnt to have reported losses in treasury operations in its balance sheet for the year ended March 31, 2005.

SBH has paid just Rs 129 crore as tax advance for the year 2004-05 as compared to Rs 312 crore paid by it towards corporate tax during 2003-04, which is down by more than 50 per cent.

SBH's financial performance is even more surprising from the fact that the I-T department expected almost Rs 100 crore more over the last year's tax receipts from the bank.

Even Andhra Bank has not shown any remarkable growth in its business. According to sources in the I-T department, though the corporate tax paid by the bank for the year 2004-05 is slightly up at Rs 230 crore as compared to Rs 209 crore paid by the bank during 2003-04, this does not reflect a very encouraging scenario for the banking sector during this period.

This trend is mainly attributed to the falling treasury income and a fall in interest rates besides growing competition.

The performance of the two big pharma companies in the state "� Dr Reddy's Laboratories and Aurobindo Pharma is no different from the above examples.

According to sources, Dr Reddy's has not paid a single rupee towards corporate tax for the year 2004-05 due to losses, mainly on account of its research and development initiative.

This development is all the more serious considering the fact that the company had paid a tax advance of Rs 40 crore just a year ago. When it comes to Aurobindo Pharma, the receipts from the company as advance tax stood at just Rs 5 crore for the year 2004-05 as compared to Rs 26 crore during 2003-04.

Companies like Matrix Laboratories, whose contribution towards corporate tax has slightly gone up, are also feeling the pinch of declining profits.

According to informed sources in the pharma sector, competition from new players in regulated markets like the US and Europe combined with a fall in prices of drugs impacted the pharmaceutical companies, especially during the second half of the last financial year.

The situation, however, is entirely different for the players in the steel and iron ore sectors. Public sector National Mineral Development Corporation (NMDC) has paid a whopping Rs 350 crore towards corporate tax, which is a jump of more than 100 per cent as compared to the previous year's Rs 170 crore.

Similarly, tax advance from Visakhapatnam Steel Plant has gone up to Rs 110 crore for the year 2004-05 as compared to Rs 60 crore in 2003-04. But, the tax advance paid by other public sector entities like Bharat Dynamics Limited and ECIL has come down for the year ended March 31, 2005.

The trend basing on the tentative data shows an average growth of 26 per cent in tax receipts (both corporate and income tax) during the year 2004-05 when compared to the 33 per cent growth in the previous year.

Of this, the growth in corporate tax collections stood at 31 per cent (39 per cent) while the growth in income tax was at 21 per cent (28 per cent).

According to sources, the I-T department has so far received about Rs 4,700 crore towards corporate and income tax in the state as compared to the annual target of Rs 5,095 crore.

"There is going to be some shortfall as fixing a 33 per cent growth target on a tax base which was expanded by 33 per cent during 2003-04 is not realistic," a senior I-T official told Business Standard. The final picture, however, is expected to emerge only in the next week of April 2005.