Financial results released by over 20,000 companies in the corporate sector show that profitability of the companies have been declining steadily and steeply for nearly a decade, according to the think tank CMIE.
The CMIE assessed audited financial results of these companies as part of the analysis. The sample of companies analysed include finance and non-finance companies, listed and unlisted companies and small and big companies.
The Centre for Monitoring Indian Economy (CMIE) report said the key reason for decline in profit (starting from 2007-08) was fall in investments, rise in tax incidence and subdued demands.
"India Inc is slipping into a deep morass of collapsing profitability and falling investments growth driven by excessive capacity and rising tax incidence, the CMIE report said.
Net profit after tax (PAT) as stated by companies was 2.3 per cent of total income in 2017-18, as per the report. "If we adjust these stated profits and the corresponding income transactions that pertain to prior periods or those that were extraordinary in nature then the margin was even lower at 2.1 per cent", it said.
The report said that taxes make a bigger claim on the revenue of companies than profits. "While profits account for a little over 2 per cent of the top line, direct and indirect taxes account for three times as much. Taxes took away 6.5 per cent of the top line".
Since 2014-15, the share of profits in total income has been declining, while the share of taxes has been on gaining spree, the report said.
"Although the government has reduced corporate tax rates for relatively smaller companies recently, the overall corporate tax incidence has been rising. The reduction in rates, first introduced in 2017-18, has had no impact on the overall corporate tax incidence on company profits," it said.
The report showed that corporate direct tax as a percent of the profit before tax (PBT) more than doubled from 23.8 per cent in 2005-06 to 55.4 per cent in 2017-18. The reason for constant rise in corporate tax was that "the share of the losses at PBT level, of the loss-making companies in aggregate PBT of all companies has been rising".
The sample of companies analysed above accounted for around 55 per cent of the total corporate tax collections by the central government in 2017-18. Over the past 10 years, on an average these accounted for 57 per cent of the total taxes, the report said.
"Early results for 2018-19, based on about a thousand companies that account for 48.7 per cent of total corporate taxes do not suggest any turnaround from the story painted above," it added.
Edited by Chitranjan Kumar