Tax Bonanza

The 25% jump in tax payout by companies in the last quarter of this fiscal is encouraging, though the sectoral picture, inevitably, shows a mixed bag. Overall, many companies are expecting faster profit growth and topline growth continues to be healthy. Leading the pack are commodity producers who faced the brunt of the economic slowdown.

The surge in crude and commodity prices has helped them revive and make profits. So, the fourth instalment of advance tax of companies like Tata Steel, RIL and Hindalco was higher than what they paid a year ago. But high raw material prices have hurt manufacturing and consumer goods makers like Tata Motors and HUL.

This is only logical. Alongside commodity producers, financial companies, especially foreign banks, led the growth in tax paid for the fourth quarter. Credit growth in these banks galloped even as interest rates headed north. However, the tax outgo of some of their peers in domestic banks, including the country's largest lender SBI, dipped.

This is simply because deposit growth did not keep pace with credit growth. The margin pressure is expected to ease in the near term, helping most bank stocks recover. Corporate earnings could improve in the medium term when industrial production revives.

The strong tax collection numbers in the January-March quarter lend hope of a sustained growth in the domestic economy. More than half of the advance corporation tax is due in two instalments in December and March. Thus, it is legitimate to conclude corporate tax collections may touch the revised target of nearly 3 lakh crore this fiscal.

The tax department should continue to deepen the tax net and bring about better compliance. The focus should be on the big fish, many of whom continue to elude the tax net. This calls for a sea change in the way the tax administration works. It should make more efficient and imaginative use of information technology.

The incentive for tax evasion will go when tax rates are moderate and tax laws simple. An early roll-out of the GST will also foster better compliance.