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The effective corporate tax rate has risen after a gap of two years, indicating an improvement in the profitability of the corporate sector and phasing out of deductions. Now, with proposed plan to phase out exemptions from 2016-17, the effective rates could go up further.
Every year, the income tax department calculates the effective tax rate on the basis of income and profits reported in the returns filed. It is derived with the help of profit before tax and tax paid. The rate also reflects the provisions of special tax rates, exemptions, deductions, rebates, deferrals and credits for various sectors. The Finance Ministry has reported this in the Budget document presented in Parliament every year.
The latest calculation is for 2013-14, for which data pertaining to over 5.64 lakh returns was culled. These returns were filed electronically up to November 30 last year and represent about 90 per cent of the returns expected in this financial year (2014-15) ending March 31.
According to the data, between 2008-09 and 2013-14, the highest effective corporate tax was reported in 2010-11, when it went up to 24.09 per cent. But, after that it was on decline for next two years and then rose again in 2013-14. The normal corporate tax rate for companies with income up to Rs 10 crore is 32.45 per cent, while it is 33.99 per cent for companies with income above Rs 10 crore. All the rates are inclusive of education cess.
The Budget document titled ‘Statement of Revenue Impact of Tax Incentives under the Central Tax System,’ attributed the increase in surcharge for bigger companies and gradual phasing out of profit- linked deductions for the hike in effective tax rate during 2013-14. In addition, “it is seen that the profile of companies in the data of 5,64,787 companies indicates that the number of companies showing a loss has reduced from 2,50,865 (40.54 per cent of the sample) in 2012-13 to 2,28,447 (40.45 per cent of the sample) in 2013-14.”
The effective tax rate for public sector companies is 19.33 per cent, while for private companies, it is 24.44 per cent. Similarly, among manufacturing companies, the rate is 21.96 per cent, while for services, it is 24.37 per cent. Sector-wise, leasing companies in the financial space have lowest effective corporate tax at 1.64 per cent, while excise contractors in services have the maximum at 82.23 per cent.
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