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September 21, 2019

Tax s(h)aving

Top 1,000 listed cos get a ~Rs 37,000 crore bounty
CRISIL Impact note

The government has announced revenue forego of Rs 1.45 lakh crore on account of these steps, a large proportion of which would be due to the corporate tax rate revision. The drop in tax rate would now bring India on a par with most Asian economies.


An analysis using CRISIL’s Quantix tool throws up a very interesting picture. Over 25,000 companies made profits in fiscal 2018, and they accounted for nearly 60% of the tax paid by India Inc. Companies (1,074 of them) with revenue of Rs 1,000 crore or more had the highest effective tax rate of 27%, and they accounted for nearly 40% of the total corporate tax revenues, and nearly 80% of tax collected. Companies (1,363) with revenues of Rs 400-1,000 crore had an effective tax rate of 24%, while companies (nearly 24,000) with less than Rs 400 crore revenues had an effective tax rate of 25.4%.


Companies in the highest bracket account for a larger proportion of taxes and would also benefit more given the higher tax rates. We have therefore done deeper analysis on larger companies with more recent data in the listed space.


CRISIL Research’s analysis of nearly 1,000 companies – spread across 80+ sectors such that they cover more than 70% of NSE’s market capitalisation – indicates that effective tax rates had risen over the past 5 years. These companies, including oil & gas, and financial services, account for nearly a third of the tax paid by India Inc.


Of these 1,000 companies, nearly 250 made losses in fiscal 2019 thus did not pay taxes. Nearly 40% of them had an effective tax rate of more than 30%.


Further, nearly 55% of the tax paid comes from sectors such as oil & gas, consumer-related, and exports-linked (including IT services, pharmaceuticals, and gems & jewellery). On the other hand, construction-linked and investment-linked sectors account for 10% of the taxes each.