Advance tax collections touch Rs 23,000 crore

Advance tax collections touch Rs 23,000 crore
The Financial Express, June 18, 2009, Page 1

Economy Bureau, New Delhi

These may not be the vaunted ‘green shoots’ of recovery yet, but advance tax collections are hinting a gradual return to normalcy in some sectors of the economy. While industrial output growth returned to positive territory in April, according to initial trends, advance tax payments by India Inc in the first tranche ending June 15 are expected to touch Rs 23,000 crore, almost equal to the Rs 23,216 crore collected in June 2008.

But the stock markets interpreted the figure as a gloomy sign of corporate recovery. The 30-share Sensex of the Bombay Stock Exchange fell 435.07 points or 2.91% to close at 14,552.84 points. The broader 50-share Nifty of the National Stock Exchange ended down 161.65 points at 4,356.15, losing 3.58%.

Sectors like banks and financial services, FMCG and auto companies have paid a higher advance tax. The tax outgo of realty, oil and mining companies are still lower than last June’s. “Although corporate advance tax payments till June 2008 grew by nearly 20%, the payments in this fiscal’s first instalment can be considered as robust, given the slowdown in the economy,” an official in the finance ministry said.

The fall in the profit margins of oil companies is the result of sustained losses in the sale of LPG and kerosene they have been forced to bankroll. Thus, Oil & Natural Gas Corporation (ONGC) has been replaced by State Bank of India as the highest advance tax payer in the country, which deposited Rs 1,068 crore for the quarter ending June 15, 2009 –a 61% growth over the Rs 663 crore it deposited in the first tranche in 2008-09.

Companies pay advance tax on their estimated earnings every year. Instead of paying a lump sum amount at the end of the fiscal, they break it down into four instalments. They pay 15% of their advance tax estimates by June 15, 30% by September 15, followed by another 30% by December 15. The balance 25% is paid by March 15.

The turmoil in international economies since last October has hit corporate India as well, with most of them battling problems of falling prices and lowering demand. Subsequently, their advance tax payments too have been on a decline. In fact, in 2008-09, corporate advance collection tax fell by 1.4% to Rs 1,32,285.2 crore.

“Although advance tax payments for the quarter ending June 15, 2009 are at par with June 2008, they should not be seen as an indicator for the overall performance of the year. Though some sectors have done well, since economic growth is estimated to be lower in 2009-10, the tax collections for the fiscal will also be affected,” said Rajeshree Sabnavis, tax partner, BMR Advisors.

Within the financial sector, Life Insurance Corporation of India’s advance tax outgo has risen 7.82% to Rs 469 crore in the first instalment, while ICICI Bank has paid Rs 350 crore, just 2.94% more than the Rs 340 crore it deposited a year ago.

Continuing the buoyant trend in the sector, HDFC Bank’s advance tax outgo rose 16.28% to Rs 250 crore in June 2009; Punjab National Bank shelled out Rs 236 crore – a 47.5% rise over June 2008 and Bank of India registered an 89.3% rise in its tax payment at Rs 231 crore.

“Banks continue to be profitable as they have been well regulated and have been safe from the international crisis. While the stimulus measures have had an impact on auto companies and consumer goods sector, real estate prices remain high, leading to their lower tax outgo. Profitability of export-oriented and IT companies too will continue to be hit by the global recession,” pointed out Sandeep Chaufla, tax partner with Ernst & Young.

Significantly, Hindustan Unilever Ltd has registered a 25% rise in its advance tax payment at Rs 75 crore. Mukesh Ambani’s Reliance Industries Ltd, however, saw a 7.6% decline in its outgo to Rs 314 crore.

Meanwhile, the three stimulus packages seem to be having an effect with the advance tax payments by automobile companies registering a marginally higher growth. Although tax payments by Tata Motors and Bajaj Auto remained steady at Rs 30 crore and Rs 50 crore, respectively, Hero Honda’s advance tax outgo surged by 67.5% to Rs 64.5 crore.

Similarly, Mahindra & Mahindra’s advance tax payment rose 25% to Rs 17.5 crore in the first tranche. However, India’s largest car manufacturer Maruti Suzuki’s tax payment fell 3% to Rs 92 crore.

Infrastructure companies seem to be faring poorly, if their advance tax outgo is any indication. Although ONGC is the country’s second largest corporate advance tax payer, it deposited 33% less tax at Rs 890.5 crore in the first instalment. GAIL India Ltd also witnessed a 25.3% erosion in its outgo to Rs 250 crore.

The outlook for metal and mining companies too does not seem very positive. Steel Authority of India Ltd paid Rs 345 crore in advance tax – a 24.5% dip over last June and Tata Steel deposited 35.3% lesser as advance tax in June 2009 at Rs 230 crore. Amongst real estate companies, Housing & Urban Development Corporation Ltd is the only one to have paid an advance tax so far, officials said.