Corporate tax receipts for FY23 may be lower than expected, while exceeding budget forecasts, with tax paid out falling in Q2FY23.
So far in the Q2FY23 reporting season, corporate taxes from manufacturing and service industries have declined by about 15% year on year. The taxes provided for a sample of 1,699 companies are Rs 52,575 crore, compared to Rs 61,653 crore in Q2FY22.
Banks, on the other hand, have experienced a 67% year-on-year increase in tax costs, with a group of 31 banks paying over Rs 20,400 crore. Profit before tax (PBT) recorded by industrial and non-bank services sectors in Q2 FY23 fell 20.5% year on year to Rs 1.94 trillion, owing to high input inflation.
Although revenues increased by nearly 29% year on year, the operating profit margin shrank by 455 basis points. Higher borrowing expenses, which have risen 17.6% year on year, have also affected profitability.
Banks and financial institutions, on the other hand, are doing exceedingly well. They are in a golden place where loan rates are rapidly rising, the cost of financing is cheap, and credit demand has rebounded following the epidemic. Furthermore, loan loss provisions have dropped dramatically in the last year or two.
State Bank of India (SBI) alone has budgeted for taxes of Rs 4,817 crore in Q2FY23, a 69% increase year on year.
The government has projected Rs 7.23 trillion in corporate tax receipts for FY23, a 13% increase above the revised estimate (RE) of Rs 6.35 trillion for FY22. With banks likely to perform well, the aim might be met even if manufacturing businesses’ share is lower than predicted. The tide may be turning for manufacturing companies in the second half of the year, as commodity prices have dropped significantly in recent months.
Corporation tax is levied at 22% on enterprises with a turnover or gross revenues of more than Rs 400 crore. However, depending on the income bracket, the effective tax rate ranges from 22.9% to 25.6%. After the government reduced the corporate tax rate from 30% to 22% in FY2020, the effective tax rate for Indian companies fell to 22.5% in FY2020 from 27.8% in FY2019. Companies with a PBT of more than Rs 500 crore accounted for more than half of all collections in FY19.