New Delhi: A sharp fall in advance tax payments for the last quarter of this fiscal by the 100 largest tax-paying firms reveals that Indian companies were blindsided by the abrupt downturn in the economy in last six months. And, since taxes are directly correlated to profits, the last-quarter payments point to a not so hopeful outlook for the first quarter of 2009-10.
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Corporate tax payments in the January-March quarter of 2008-09 by these taxpayers amounted to Rs7,622 crore, a contraction of 13% compared with the year-ago period. Advance taxes have generally contributed over half the total tax payments by companies who have been the primary driver of direct tax revenue growth, which is the mainstay of the Union government’s total revenue.
The list of top 100 taxpayers included companies where the fall in the fourth quarter tax payment was at odds with positive growth for the whole year. In some cases, the fourth quarter fall dragged down full-year growth. Fourth-quarter tax payments serve as a rough proxy for the kind of profits the company expects early next fiscal.
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“It is a fair proxy. This quarter’s earnings is a fair indicator of the next six months to follow as an overall trend,” Sudhir Kapadia, partner at consulting firm Ernst and Young, said on the signal given by the data.
Advance tax payments are made in four batches each year based on a company’s profit estimate. They reflect the industry’s profit expectations and also serve as an indicator of the Union government’s borrowing needs to meet its fiscal deficit.
Housing Development Finance Corp. Ltd’s fourth-quarter advance tax payment came to Rs240 crore, a fall of 43% from a year earlier. The period coincided with a slowdown in real estate activity and restricted the increase in the full-year tax payment to 2% at Rs950 crore.
Infosys Technologies Ltd paid Rs125 crore in the fourth quarter, a fall of 17%. For the full year, the company’s advance tax payment was Rs500 crore, higher by 25%. Cognizant Technology Solution India Pvt. Ltd paid Rs13.2 crore in the fourth quarter, a fall on-year of 70.34%. For the full year, it paid Rs296.40 crore, higher by 161%.
Graphics by Ahmed Raza Khan / Mint