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PSUs shell out more tax than private sector giants

Public sector companies are coughing up as much 25.4 per cent of their profit as tax while the effective tax rate on private sector companies as a whole stands at 23 per cent.

S.P.S Pannu | April 4, 2011 | Updated 12:10 IST

Public sector companies pay the highest percentage of their profit as corporate tax in the country followed by small- and medium- sized private sector companies, while big corporates shell out the smallest share of their profits as tax.

Official figures accessed by Mail Today show that public sector companies are coughing up as much 25.4 per cent of their profit as tax while the effective tax rate on the private sector companies as a whole stands at 23 per cent.

According to these figures, within the private sector companies in the Rs 10-50 crore profit range paid up 23.8 per cent of their profit as corporate tax; those in the Rs 50-100 crore profit bracket contributed 22.8 per cent of their profit as tax while companies in the Rs 100-500 crore category shelled out 23.1 per cent of their profit as tax.

However, 216 big companies with profits greater than Rs 500 crore paid up only 22.6 per cent of their profit as tax. These firms accounted for 55.75 per cent of the total profit in the sample of 427,811 taken up by the finance ministry for getting a deeper insight into the "effective rate of corporate tax" in the country.

CRORES SAVED IS CRORES EARNED!
  • Small- & medium-sized private sector firms follow PSUs in paying corp tax.
  • Public sector firms cough up as much 25.4% of their profit as tax.
  • Private sector firms in the Rs 10-50 cr profit range paid 23.8% of their profit as corporate tax; those in the Rs 50-100 cr profit bracket contributed 22.8% as tax while firms in the Rs 100-500 cr category shelled out 23.1% of profit as tax.
  • 216 big companies with profits greater than Rs 500 cr paid up only 22.6% of their profit as tax.
  • These 216 firms account for 55.75% of the total profit in the sample of 427,811 companies.
  • Senior officials say this difference in effective tax rate shows that big corps are taking advantage of various tax exemptions given by the govt.
  • Deductions for "accelerated depreciation" on new plant and machinery account for the largest amount of revenue foregone at Rs 35,494 cr.
Senior officials point out that this difference in the effective tax rate among various companies shows that it is the big corporates that are taking advantage of various tax exemptions given by the government in the form of incentives to promote higher levels of investment and R&D activities.

These officials are also of the view that the bigger companies have "smart accountants" who know how to project their cases for various exemptions and lower the effective tax rate for them.

Deductions for "accelerated depreciation" on new plant and machinery accounts for the largest amount of revenue foregone at Rs 35,494 crore for the fiscal ended March 31.

Deduction of profits for companies engaged in providing telecom services works out to Rs 4,251 crore while those in generation and transmission of power has been put at Rs 8,763 crore. Infrastructure sector firms account for as much as Rs 3,159 crore in revenue foregone by the government by way of exemptions.

Deduction of profits of undertakings engaged in the development of special economic zones (SEZs) to promote exports accounted for close to Rs 1,000 crore in revenue forgone. The revenue foregone on exports from SEZs was put at Rs 5,126 crore.

There are serious differences between the finance ministry and the commerce ministry over the contribution of SEZs to India's growth story.

The finance ministry sees a huge amount of revenue leaking out of the system due to the tax-free status granted to these zones and the 18.5 per cent minimum alternate tax (MAT) on the book profits of developers and units operating in SEZs proposed in the 2011-12 Budget aims to plug this gap.

Finance ministry officials say there have been huge revenue diversions from domestic operations to these zones in order to dodge taxes.

A report by the Comptroller and Auditor General of India (CAG) had also pointed out that these tax-free zones sell most of their goods within the country as "deemed exports" rather than actually exporting them overseas.

Courtesy: Mail Today

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