The Hindu Business Line : Corporate taxes: Who paid the most and the least

Chennai, July 7 Software, power, pharmaceuticals and property developers. Companies in these sectors may have the most to fear from any concerted attempt by the Government to bolster its tax kitty by phasing out the various exemptions now available on corporate tax.

These sectors were among the ones to suffer the lowest effective tax rates within Corporate India, data presented in the Receipts Budget 2009-10 show (Annexure on ‘Revenue Foregone’).

Companies in the above sectors paid out only 12-18 per cent of their profits as corporate tax in 2007-08. Not only was this much lower than the stipulated corporate tax rate of 33.99 per cent (including surcharge and education cess), it was also several notches lower than Corporate India’s average tax outgo of 22.2 per cent. The Budget culled this information from a large sample of over 4 lakh corporate taxpayers available with the Income-Tax Department.

The ones that got away

Among the major sectors listed, software development services enjoyed the lowest tax incidence of 12 per cent, probably attributable to the various tax exemptions enjoyed by these companies on their export profits earned from software technology parks, SEZs and export-oriented units.

That also ties in with the fact that exemptions on export profits (under Section 10A) have been among the biggest sources of “revenues foregone” for the Government over the past two years. Power companies and property developers too managed to get away with relatively low tax incidence, with some of the profits from their core business enjoying tax exemptions under Sections 80IA and 80IB of the tax laws.

With a good portion of the revenues and profits for the home-grown pharmaceutical companies coming from the export of generic drugs, this sector too enjoyed low tax incidence.

Apart from these there were many smaller sectors that got away with very low tax incidence. The 251 sugar companies in the sample paid only 3 per cent of their profits as taxes in 2007-08, probably on account of the tax shelter arising from carry-forward losses from the downturn in the sugar cycle.

The big payers

At the other end of the spectrum, there were quite a few large sectors that were liberal in contributing to the tax kitty. Engineering, banks, steel and automobiles were the larger sectors that endured a fairly high tax incidence of 24-30 per cent, above than the average tax rates for Corporate India.

There were also smaller sectors such as printing and publishing (effective tax rate of 31 per cent), courier services (36 per cent), television channels (37 per cent) and advertisement agencies (32 per cent) which shelled out much higher taxes than the average.

Predictably, public sector companies paid out a higher proportion of their profit (25.7 per cent) as tax, than private sector ones (21.3 per cent).

However, manufacturing companies (22.5 per cent tax rate) shelled out only marginally higher tax than service companies (22 per cent). Overall, the document estimates the corporate tax ‘foregone’ in 2007-08 due to various exemptions was at Rs 62,199 crore, or 10.5 per cent of the tax collected under this head, for the year.

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