Advance tax kitty offers glimmer of hope, up 10%

Mumbai: Amid all the economic gloom, there seems to be a glimmer of hope—an increase of 10% in the advance tax paid by India’s top 100 companies for the first quarter of the current fiscal, compared with the year-ago period.

Banks, oil and gas companies and makers of consumer packaged products paid more tax, income-tax (I-T) officials said on Friday. However, automobile and steel makers and capital goods companies disappointed, they said.

Indian companies pay advance tax a fortnight before the end of every quarter on their projected earnings and these numbers are seen by most analysts as a reflection of their financial performance—a relationship that usually holds up (and sometimes doesn’t). In line with the Income-Tax Act, companies are required to pay 15% of their total advance tax in the first quarter, followed by 30%, 30% and 25% in the next three quarters, respectively.

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Mint’s P R Sanjai says, amid all the economic gloom, a 10% increase in the advance tax paid by India’s top 100 companies is like a ray of hope

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Total advance tax paid by around 72 companies, including India’s second most valuable firm, Reliance Industries Ltd (RIL), and largest bank by assets, State Bank of India (SBI), rose 10.4% in the June quarter to Rs 9,342.5 crore from Rs 8,455 crore in the same period a year earlier, according to a list of corporate taxpayers reviewed by Mint. The I-T department didn’t release a list of all the top 100 taxpayers and the advance tax they paid, but officials said the overall increase was 10% year-on-year.

The double-digit increase in advance tax paid is reason for cheer, coming as it does at the end of a week in which Standard and Poor’s warned that India risked having its investment-grade rating reduced to junk status, citing slower economic growth, ballooning deficits and political roadblocks to economic policymaking. Besides that, data showed industrial output remained flat, inflation accelerated, and both exports and imports contracted.

Also See | Advance Tax Collections (PDF)

Asia’s third largest economy slumped to a 5.3% growth pace in the January-March quarter—the slowest in nine years. That brought down growth in fiscal 2012 to 6.5%, compared with 8.4% in the year before.

SBI was the highest taxpayer, contributing Rs 1,170 crore in the first quarter against Rs 1,100 crore in the year-ago period. Life Insurance Corporation of India paid Rs 630 crore, up 8.2% from Rs 582 crore. ICICI Bank Ltd and HDFC Bank Ltd paid Rs 500 crore each, against Rs 400 crore each a year earlier.

RIL, controlled by India’s richest man, Mukesh Ambani, paid Rs 768 crore as advance tax for the first quarter, down 14.6% from Rs 900 crore for the corresponding quarter of last fiscal.

“The advance tax collections are encouraging,” said a senior I-T official, who didn’t want to be named. “Mumbai division has a total tax collection target of Rs 1.78 trillion, which is 15% up from the total actual tax collected by the city last fiscal.” The Mumbai division, which serves as the headquarters for most of India’s top companies, contributes the biggest share of taxes.

In fiscal 2011-12, the government collected taxes of Rs 4.93 trillion, as per provisional estimates, against a budgeted Rs 5.32 trillion.

To be sure, not everyone sees the advance tax numbers as a pointer to a secular trend.

“Historically, advance tax numbers have not been indicators of underlying economic trends or of economic revival or depression,” said Saurabh Mukherjea, head of equities at financial services firm Ambit Capital Pvt. Ltd.

Even so, Mukherjea said, “We believe that the Indian economy is gaining some of the lost ground and our discussions with promoters suggest that companies which have strong balance sheets are becoming more predisposed to new capital expenditure. Based on several factors, we believe that the economy could well have bottomed out already.”

With slowing economic growth likely to dent revenue collections, the finance ministry is proposing to make good any shortfall by shifting its focus to companies operating in the still rapidly growing consumer economy and a closer scrutiny of the top 100 assessees to check for any tax evasion.

Earlier this week, finance secretary R.S. Gujral, who was addressing the annual I-T commissioners’ conference, directed field staff to go slow on I-T refunds, which had aggregated to a record Rs 95,278 crore in 2011-12. The government has fixed a direct tax collection target of Rs 5.7 trillion for the current fiscal.

Significantly, the gross direct tax collection in the April-May period was up 3.62% to Rs 52,232 crore, from Rs 50,407 crore in the same period a year earlier.

While the gross collection of corporate taxes showed a decline of 2.82% (Rs 24,329 crore against Rs 25,035 crore), gross collection of personal income tax was up 10.02% (Rs 27,884 crore against Rs 25,344 crore).

Net direct tax collections showed a significant increase of 172.64% to Rs 35,323 crore, from Rs 12,956 crore in the same period a year earlier. The surge in net collections was due to a decline in refunds by 54.85% from the year-ago period.

khushboo.n@livemint.com