Contrary to the belief, India Inc is paying more taxes now than it was paying five years back even though the rate of corporation tax has remained same for last several years.
The effective corporate tax paid by companies has risen to 24.1% in 2010-11 as against 20.55% in 2006-07, meaning that India Inc is shelling out more as tax now though government has not made any changes in the basic rate of the tax. This has happened as government has gradually phased out profit-linked deduction.
According to Budget document, effective tax rate for corporates has increased from 20.55% in 2006-07, 22.44% for 2007-08 to 22.78% for 2008-09. In the year 2009-10, the effective rate stood at 23.53%.
Interestingly, while private companies are paying more as tax, the burden of effective tax is lesser for their public sector counterparts. In the last fiscal, the effective tax rate for private companies stood at 24.61%, while it was 22.28% in case of public sector companies. The share of tax for private firms and public companies was 79.70% and 20.30% respectively.
The income-tax department has received 4,59,270 corporate returns electronically up to December 31, 2011 for the financial year 2010-11, which constitute about 90% of the total corporate returns expected in financial year 2011-12. These companies reported corporate tax payable at R2,28,158 crore, inclusive of surcharge and education cess, for their income of financial year 2010-11.
The corporate tax rate is around 32.5%, including surcharge and cess but effectively they pay less on account of various tax incentives given by the tax department.
For the current fiscal, it is expected to be even higher since the revenue foregone on account of various tax incentives is likely to decrease to R51,279 crore from R57,912 crore in the last fiscal.
The government has phased out tax deduction on export profits of software technology parks and export oriented units from the current fiscal. This together constituted over R10,000 crore revenue foregone in the last financial year. For the next financial year, the income tax department has estimated to raise R3.73 lakh crore from corporate tax as compared to R3.27 lakh crore in the current fiscal.