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ShareNew Delhi: Out of a total of 4.1 lakh corporate returns received by the income-tax department till March 2009 for the assessment year 2008-09, there are only 190 companies with profit before taxes (PBT) of over Rs 500 crore, government documents on the Union Budget 2009-10 show.
These 190 companies accounted for as much as 54.98% of the total PBT and 54.02% of the total corporate income tax payable.
Interestingly, the effective tax rate was an average of 21.85% for these 190 companies, as against 24.04% for firms with PBT of up to Rs 1 crore, the finance ministry papers have stated. The effective tax rate for the entire sample of 4.1 lakh companies stood at an average of 22.24%, when the statutory tax rate is 33.99%.
The effective tax rate is the ratio of total taxes paid (including surcharge and education cess but excluding dividend distribution tax and fringe benefit tax) to the total PBT, and is expressed as a percentage.
The documents have indicated that there's lesser deviance from PBT in the case of relatively smaller companies as compared with larger firms because of higher tax concessions being availed by the biggies. In fact, companies that have PBT of between Rs 10 crore and Rs 500 crore are the ones paying the least tax.
The papers further show that a large number of companies, around 2.29 lakh, contributed a disproportionately lower amount in taxes in relation to their profits. Only 43,886 companies, which account for 14.3% of total profits and 25.49% of the total taxes, had an effective tax rate of greater than the statutory rate.
The finance ministry noted that "the tax liability across companies is unevenly distributed. This is primarily due to the various tax preferences in the statute".
While there are 3.96 lakh companies with PBT of up to Rs 1 crore, there are only 18,117 firms with PBT of Rs 1 crore to Rs 10 crore, 3,433 of Rs 10 crore to Rs 50 crore, 611 of Rs 50 crore to Rs 100 crore, 616 of Rs 100 crore to Rs 500 crore, and 190 of more than Rs 500 crore.
As for the effective tax rate for these companies, here's what they paid. Around 1.6 lakh companies had an effective tax rate of zero, 67,398 companies had a band of 0 to 20%, 13,168 fell in the 20-25% category, 20,335 in the 25-30% band, 72,137 in the 30-33.99 % range, and 43,886 in the over 33.99% category.
For 31,591 companies, the effective tax rate was stated as "indeterminate".The documents also indicate that PSUs pay a larger proportion of their profits as tax, compared with the private sector.
However, both categories pay less than the statutory effective tax rate of 33.99%. The effective tax rate for PSUs has been shown as 25.69%, against 21.28% for the private sector. While there were a total of 1,808 PSUs, there were over 4 lakh private sector companies which filed corporate returns for the assessment year 2008-09.
The ministry has analysed the corporate tax data for the manufacturing and the service sectors as well. While the effective tax rate was 22.46% for the manufacturing sector companies, it was lower at 22% for the service sector firms. As against over 1.14 lakh manufacturing companies, there were more than 2.95 lakh service sector firms.
Yet another finding is that the effective tax rate is very low for the category including IT-enabled service providers/BPOs and software development agencies at 15% and 12%, respectively. These industries are said to have contributed 5.66% of the total profits but only 3.46% of the total taxes.
The revenue foregone in the corporate tax category is now estimated at Rs 62,199 crore.
