Skip to main content

Corporate tax growth feels GST heat


The exchequer got 19.1 per cent more from direct taxes in the first four months of the current financial year (FY18), but the amount paid by companies reflected their struggle with the goods and services tax (GST). The total direct taxes after refunds grew 19.1 per cent at Rs 1.9 lakh crore between April and June this year.
Last year, during this period, it had risen 24 per cent. This isaminor deceleration, but when compared in terms of percentage of Budget Estimates (BE), the figures this time are rosier.
The collections constituted 19.5 per cent of the BE of direct taxes for FY 18.
In FY 17, they had accounted for 18.8 per cent of the BE.
What is startling, however, is the slow tax collection from corporate entities.
This year, this grew by 7.2 per cent in the AprilJuly period, sharply lower than the 11.7 per cent in the same period last year.
Experts said the slowdown could be attributed to adjustments leading to destocking and the offering of discounts by companies as the government ushered in the new indirect taxation system on July 1.
Aditi Nayar, principal economist with Icra, said gross corporation tax collections recorded slower growth, reflecting factors such as subdued volume growth in various sectors as well as the discounts offered to reduce inventories ahead of the transition to the GST.
Available indicators —such as the sequential decline in growth in non oil exports, core sector output and automobile production —suggest that industrial growth was subdued in June.
“Given the unfavourable base effect and inventory trimming prior to the onset of the GST, we expect a 1 per cent contraction in the Index of Industrial Production in June.
Subsequently, the Purchasing Managers´ Index (PMI) for manufacturing as well as services indicates a contraction in July,” she added.
While the services sector PMI plunged to a four year low in July to 45.9 points from 53.1 in June, manufacturing PMI contracted to an eight year low of 47.9 from 50.9 points.
Madan Sabnavis, chief economist with ICRA, attributed the slowing growth in corporation tax collections to destocking and discounts offered by companies.
He, however, said this would be more than compensated for by rebuilding of inventories after initial hiccups due to the GST, from the third and fourth quarters.
Nayar said higher prices of some commodities in April July, compared to the same period in 2016, might be squeezing the margins of companies in some sectors.
For instance, many businesses would be experiencing higher fuel costs, following the 8 per cent rise in the average crude oil prices.
Also, the margins of some exporters might be getting squeezed following the rupee appreciation relative to the dollar, she added.
Personal income tax collections, including the securities transaction tax (STT), were up 17.5 per cent. Growth was 31.47 per cent in the same period in FY 17.
After adjusting for refunds, net growth in corporate tax collections stood at 23.2 per cent in the period under consideration.
Similarly, personal income tax collections rose 15.7 per cent.
Growth was 46.55 per cent in April July of FY 17.
The phenomenal growth of personal income tax collections was because of a change in the rules of advance payments in FY 17.
Refunds to the tune of Rs 61,290 crore were issued in April July against Rs 64,181 crore in the corresponding period of the previous financial year.
The phenomenal growth of personal income tax collections was because of a change in the rules of advance payments in FY 17.
The Business Standard, New Delhi, 10th August 2017

Comments

Popular posts from this blog

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...

Luxury carmakers urge clarity on GST rates to boost festive season sales

  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...

Sebi proposes tighter norms for green bond third-party reviewers

  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...