05 Feb 2018 13:20 IST

Richest companies have the lowest tax liability

They milk tax breaks in ways that smaller firms can’t, paying only 23.9% tax on average

India’s most profitable companies paid 23.9 per cent tax on an average on their profits for financial year 2016-17, about 10.7 percentage points lower than the statutory rate of 34.6 per cent, helped by a wide range of concessions and incentives, the latest Budget documents show.

These companies, 335 in all, may see little change to their tax liability if the corporate tax was cut to 25 per cent and all concessions withdrawn immediately. Each of these 335 companies had reported profits before tax of ₹500 crore or more for the 2016-17 financial year. In comparison, companies with profits less than ₹500 crore paid about 29 per cent tax, as did those with profit less than ₹1 crore, an analysis by the Revenue Department found.

Small cos at a ‘disadvantage’

The smallest companies rarely manage to take advantage of various tax incentives and concessions that the law permits, and therefore bear higher tax liability. The pattern of tax incidence for companies of different sizes was not very different for the previous years.

The Revenue Department analysis is based on tax returns filed until November 30, 2017 by about 6.01 lakh companies on incomes earned in 2016-17. Returns for financial year 2016-17 are filed in 2017-18 and more companies may file their returns before the end of the current fiscal year.

Historical data showed that the effective tax rate was higher in 2015-16. That year, most profitable companies paid 25.9 per cent tax on the profits, while the smallest companies, or those with profits of less than ₹1 crore, paid 30 per cent. Additionally, the difference between the effective tax paid by the companies with the largest and smallest profits widened in 2016-17 after narrowing in 2015-16. The difference was 5.5 percentage points in 2016-17 compared to 4.4 percentage points in the previous year. In the two years prior to that, it was well over 6 percentage points.

Significantly, the richest companies also account for a disproportionately large share of the total income, profits and tax liability of corporate India.

For instance, in the financial year 2016-17, the 335 richest companies accounted for 61.2 per cent of the share of profits before taxes reported by the 6.01 lakh companies, 50.2 per cent of the total income and 54.4 per cent of the share in corporate tax liability.

The same data analysed differently showed that over 70 per cent of the companies filing returns paid less than 30 per cent as taxes on their profits for 2016-17. About 17 per cent paid 30-33 per cent tax on their profits and a little over 6 per cent paid more than 33 per cent.

The 1.4 lakh companies that paid taxes at the rate of 30 per cent or more accounted for 36.6 per cent of the share of profits of the 6.01 lakh companies, about 59.8 per cent of their total income and 54.4 per cent of their tax liability.

Further, as manufacturing sector companies are usually the beneficiaries of various tax incentives given by the government, their effective tax rate, at 24.7 per cent, was 4 percentage points lower than the effective rate for service sector companies.

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