India Inc. Paying More In Corporate Tax

by Lorys Charalambous, Tax-News.com, Cyprus

23 August 2007

The contribution by private sector companies to the Indian government in corporate taxes has more than doubled in the last four years, according to a study published by the Associated Chambers of Commerce Industry of India (Assocham).

The Assocham Eco Pulse (AEP) study, released Sunday, claimed that the amount of corporate tax paid by India's top 50 companies soared by 189% to R89.95 billion (US$2.2 billion) in 2004/5. Over the same period, corporate tax payments made by state-owned companies increased by a relatively modest 67%. Total corporate tax paid by all of India's companies increased by 159%, the study indicated.

Strong economic growth over a four-year period, coupled with growing demand, rising domestic investment, and greater acquisition activities are thought to be major drivers of the trend.

While corporate tax payments have risen across all sectors of the Indian economy, the study noted that there was especially strong growth from firms in the manufacturing sector, which have paid 152% more in corporate tax over the past four years. Companies in the steel and metals industry registered 518% growth in corporate tax payments during this period.

The conglomerate Tata Group, which comprises 96 operating companies in seven business sectors including information systems and communications, engineering, materials, services, energy, consumer products, and chemicals, alone contributed more than 10% to the government's total corporate tax haul in 2006/7, the study revealed.

The rate of corporate tax in India is currently 30%. The tax makes up the largest slice of the overall tax revenue pie, accounting for 31% of all revenues. Revenues from excise duties, which until recently were the main contributor to the government's coffers, have declined by 5% and now account for 25% of all revenues.

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