Coming on top of the 10.8% hike in industrial production in October and an 8.8% hike in GDP for this year?s second quarter, the 18% or so hike in advance taxes for the year?s third quarter is good news. Apart from the fact that it sets to rest some of the doubts cast on the IIP numbers thanks to their huge fluctuations as well as data problems, it also indicates the fears of rise in commodity prices, wages and interest costs may be overstated. To be sure, these have risen (and interest rates may rise a bit more till liquidity eases), but advance taxes are paid on profits, so it would suggest the rise in these inputs has been more than made up by the increase in topline revenues. Actual tax collections in the April-October are up 27% as compared to a decline of 8% in the same period in 2009-10 and an increase of 19% in April-October 2008-09. Excise duty collections rose 38% in April-October 2010-11as compared to a decline of 22% in the same period in 2009-10?corporate taxes rose 20% as compared to a mere 6.5% in April-October 2009-10. Apart from the hike due to industrial activity, a greater effort to tax M&A activity?of the Vodafone type, though this money is yet to be collected?has also helped raise collections.
In terms of the specific sectors, with the exception of cement, companies in most other sectors have paid higher advance taxes in the October-December quarter. The numbers also show that the financial sector has put up a healthy performance with the country?s largest lender, State Bank of India, paying the highest tax of Rs 1,850 crore for the quarter. The actual earnings growth of corporate India, for the December-end quarter, will be out around mid-January. Analysts expect a 20% increase in corporate earnings in the current financial year as both fiscal and monetary policies have played an important role in effecting a consumption-led revival in the GDP growth rate. There?s a caveat here. In the past, advance tax collections have not always grown in sync with corporate profits over the past few quarters since ?other? income growth has been high?we have to see if the trend persists.