Is India Inc.'s Profit Growth Slowing Down?

Gross advance tax paid by corporates fell 1.8% and net advance tax, adjusted for refunds, declined 8% as on June 17.

<div class="paragraphs"><p>(Source:&nbsp;pch.vector on Freepik)</p></div>
(Source: pch.vector on Freepik)

India's first-quarter corporate tax collections point to slowing profit growth for India Inc, at least going by government data.

Gross advance tax paid by corporates fell 1.8% and net advance tax, after adjusting for refunds, declined 8% year-on-year as on June 17, according to a comparison of Finance Ministry data for the ongoing and previous financial year.

To be sure, FY22 numbers are as on June 16, 2022 and data for this year is as on June 17—both being a Sunday.

Gross corporate income tax collection stood at Rs 1.87 lakh crore as on June 17 compared with 1.90 lakh crore a year earlier.

Net collection, after accounting for refunds, stood at Rs 1.56 lakh crore versus Rs 1.70 lakh crore. Refunds rose 51.3% to Rs 30,362 crore for the period till June 17, 2023 from Rs 20,068 crore a year earlier.

Rising refunds suggest that India Inc. likely witnessed a slowdown in the January-March quarter of FY23 and recalibrated their tax outgo due to slowing profitability.

It also points to narrowing margins. Sectors like metals, oil & gas have seen margin pressure as global commodity prices have fallen, while the U.S. and European economic slowdown has impacted IT sector growth.

Corporate profitability has also varied sectorally, making it harder to assess the sections that are experiencing a muted pace.

The profits shown in the financials versus the profits on which tax is paid differ because of several factors, such as depreciation and brought forward loss impact, according to Kuldip Kumar, Partner at Mainstay Tax Advisors.

"No doubt the last quarter was decent for Indian corporates, but growth is not even across the board. Financial institutions and automobiles have done pretty well, but it will be too early to conclude on any trends on corporate tax collections as there is still uncertainty around businesses and corporates would have taken a conservative approach to paying advance tax," he said.

All this should be taken in conjunction with signs of activity such as (according to government data) strong e-way bill generation and monthly goods and services tax collection. The government recorded Rs 1,57,090 crore in gross GST revenue collected for May 2023, pertaining to transactions in April—a month that usually records lower collections.

"Indirect tax collections show growth, and to some extent, inflation has also contributed to its growth. The same inflation could have moderated the corporations’ profits on which they pay corporate tax," Kumar told BQ.

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