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Advance Tax Figures In India Send Mixed Messages

by Mary Swire,, Hong Kong

20 September 2011

Figures just released show that advance tax payments made by India’s top corporates for the July-September quarter were 18% higher than in the same period a year ago.

Analysts believe, however, that the figures could indicate a possible slowdown in the economy, and there are concerns that the Government will not meet its targets for tax collection. The Government has projected a 31% increase in direct tax for the whole year.

Indian companies are obliged to make tax payments on a quarterly basis, based on their projected income. These latest figures show that companies appear to be confident about potential profit, despite high interest rates and higher costs generally.

Reliance Industries, the country’s largest private sector company, paid 67% more tax this year than the previous one, HDFC Bank paid 33.3% more tax and Life Insurance Corporation of India paid 10% more.

The Reserve Bank of India (RBI) has raised interest rates a number of times over the past year, and the Bank’s move to hike interest rates by 25 basis points will further slow down fresh investments and industrial growth, industry body the Associated Chambers of Commerce and Industry of India (ASSOCHAM) said this week.

Successive rate increases by the central bank since March 2010 have not been able to control inflation, which at a 13-month high is currently hovering close to double digits, said D S Rawat, secretary general of the business organization.

“High input costs amid global economic uncertainties – especially in the Eurozone – are adding to negative sentiments. Global commodity and oil prices have remained elevated due to easy monetary policies of developed nations that boosted liquidity in global markets.”

“All these factors in a high interest rate environment will most certainly put brakes on new investments and put corporate India in a difficult position to maintain the growth momentum. The national economy seems poised for a downward swing,” he added.

TAGS: environment | tax | business | India | interest | inflation

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