India Inc''s Effective Tax Compliance Rate Up To 26 Pc In ''07-08 - June 23, 2008

Direct tax receipts from companies and personal income have gone up by 71.3% in the first two months of the current year compared to the same period last year. The unit price realisation rose sharply, inflating net margins and by extension increased corporate tax provisions too. So far so good. But what is significant is that the tax collection in 2007-08 has increased at a higher rate than that of the pre-tax profit. The aggregate collections have increased 28.3% in 2007-08 over 2006-07 as against 26.8% rise in pre-tax profit during the same period. This has raised the effective compliance rate, that is, tax as percentage of pre-tax profit, from 25.6% in 2006-07 to about 26% in 2007-08. A 0.4 percentage point rise in compliance rate may not look very impressive, but it shows a positive trend, especially since pre-tax profit itself has increased at a very high rate. Take the case of Indian Oil Corporation, the fourth biggest tax payer in the list. Following sharp rise in crude prices it has witnessed a decline in pre-tax profits in 2007-08, but its tax provisions have increased raising the effective tax compliance rate from 28.5% in 2006-07 to 30.9% last year. And if the tax compliance rate of Steel Authority of India (Sail), the biggest tax payer in the list has remained same at 34.3% in both the years, what is important is that it has provided for much higher taxes in 2007-08. Sail earned a record pre-tax profit of Rs 11,471 crore in 2007-08 following sharp rise in steel prices and as a result, even at the same compliance rate the actual collections were substantially more than that of the previous year. As such, at 34.3% Sail''s tax compliance rate was way ahead of 26% for the sample companies as a whole. But not Sail alone, the steel companies in general seems to have higher compliance rate compared to India Inc. Nine steel companies in the list together have provided for 32.1% of their pre-tax profits towards taxes in 2007-08 as compared to 26% of India Inc.