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13
June 2017
 |
| Tax (The Total Investment & Insurance Solutions) |
Tax
incentives allowed 15,080 profit-making companies to have effective tax rates
of zero, and in some cases less than zero, in 2015-16, according to an
IndiaSpend analysis of the latest available national tax data or, more
specifically, a government analysis called the Revenue Impact of Tax Incentives
under the Central Tax System.
The
central government introduced minimum alternate tax (MAT) in the late 1980s to
tackle this anomaly, but even MAT has exemptions that appear to have negated
its original intent partially: 52,911 companies made profits in 2014-15 and
paid no tax.
Larger
corporates paid lower tax rates than smaller ones for 2015-16.
Effective
tax rate is the tax rate actually paid by companies on profits, calculated as
tax actually paid divided by profits before tax. While effective tax rates rose
between 2012-13 and 2015-16, many exemptions remain, especially for larger
companies.
For
instance, corporates have a statutory tax rate of 34.47 per cent, which they
must pay on profits. The effective tax rate in 2015-16 was 28.24 per cent,
higher than it was in 2014-15 (24.67 per cent). The Total Investment & Insurance Solutions
The
effective tax rate for a company making a profit up to Rs 1 crore was 30.26 per
cent in 2015-16 while the corporate tax rate was 25.90 per cent for those with
profits greater than Rs 500 crore. The Total
Investment & Insurance Solutions
This
means companies making smaller profits are competing in an unequal environment
against bigger companies with substantial taxation benefits even though the gap
in effective tax rates has been narrowing over the years. The Total Investment & Insurance Solutions
The
effective tax rates of the lowest paying industries (cement, sugar, financial
leasing companies), which were in single digits in 2014-15, have increased
substantially and all are touching nearly 20 per cent. The Total Investment & Insurance Solutions
These
sectors, however, continue to be taxed at lower rates than other industries
are.
There
are interesting contrasts on tax rates of different industries in the same
sector:
1.
Banking companies paid tax at 40.3 per cent while share brokers/sub-brokers
paid tax at 25.1 per cent (both financial services).
2.
Courier agencies paid tax at 41.7 per cent compared to transporters who paid
tax at 26.4 per cent (both services).
3.
Forest contractors paid tax at 37.6 per cent while mining contractors paid tax
at 28.2 per cent (both contractors).
4.
Drugs and pharmaceuticals paid tax at 24.2 per cent, while electronics paid tax
at 35.5 per cent (both manufacturing).
"The
plan for phasing out of exemptions will kick in from April 1, 2017,"
Finance Minister Arun Jaitley said in his 2017-18 budget speech.
The
government provided the corporate sector Rs 76,857.7 crore in tax breaks or
exemptions in 2015-16. The Total Investment
& Insurance Solutions
The
biggest tax exemption is the deduction on expenditure for scientific research
(including for seeds and other biotech purposes), which allows for exemption
which is twice the expenditure incurred and export profits of units in special
economic zones (SEZs).
The
government also provided customs duty exemption of Rs 69,259 crore and Rs
79,183 crore for excise duty in 2015-16. The
Total Investment & Insurance Solutions
As
many as 43 per cent of companies made losses, three per cent companies made no
profit and 47.7 per cent of companies made profits up to Rs 1 crore in 2015-16.
About
six per cent of companies recorded profits in excess of Rs 1 crore, according
to the tax data. The Total Investment & Insurance
Solutions
Contribution
by corporates to political parties shows variance compared to reporting by
political parties to the Election Commission for 2015-16.
The
deductions granted on account of contribution by corporates to political
parties has declined from Rs 112 crore in 2014-15 to Rs 14 crore in 2015-16,
according to tax data.
This
is in contrast to the data submitted by parties to the Election Commission.
Donations
received by political parties in excess of Rs 20,000 was Rs 576 crore in
2014-15 and Rs 77.3 crore in 2015-16, according to data from Association for
Democratic Reforms, an advocacy. The Total
Investment & Insurance Solutions
One
possible explanation for the variance could be under-reporting by corporates.The Total Investment & Insurance Solutions
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