Getting your Trinity Audio player ready...
Zeroing In, Finally
info_icon

THE only proposal everyone seems agreed on is definitely going to be part of Budget '96 is the scrapping of the Zero Tax Option for companies. Outlook therefore asked equity analysts Equicorp Research to study the phenomenon of Indian companies which do not pay any income tax.

Without getting into the merits or demerits of the directive, if the Zero Tax Option is removed, a whopping 1,474 companies—large and little, known and unknown—will be brought within the tax net. The roster of companies is as impressive as it is large: the country's largest steel company, the Steel Authority of India (SAIL), the largest bank, the State Bank of India (SBI), the largest private sector company, Reliance Industries, the largest sponge iron company, Essar Steel, the largest zinc-making company, Hindustan Zinc—the list is long. (Reliance has not been included in this exercise because although it did not pay income tax and is, therefore, a zero-tax company, it paid wealth tax.) Together, these companies generated business worth Rs 1,23,167.49 crore and a net profit of Rs 9,745.36 crore.

Please note, however, that they have not broken any laws. All of them have avoided paying income tax by using various tax breaks that the Government offers: export earnings are tax-free; if you invest in a backward area or in an infrastructure sector, or if you have merged with a sick company, you get a tax break; you do not pay tax on depreciation claims.

Of the over 150 groups—defined as a collection of two or more companies belonging to the same major ownership—surveyed, 45 had three or more companies that did not pay taxes in fiscal 1995, 26 groups had more than four zero-tax companies, 14 groups had more than five such companies, while the number of groups with more than 10 zero-tax companies was three: the Tata group, the joint sector group, and Central Government-owned companies.

If all these corporates had paid their taxes as per the normal rate of 40 per cent, the coffers of the Government would have been richer by Rs 3898.14 crore. And as the chart shows, even at 10 per cent tax rate, these companies would have had to fork out Rs 974.54 crore—no mean sum. In fiscal 1995, corporate taxes added up to Rs 13,822 crore. Which means if these companies were to be taxed at 20 per cent, corporate tax collections would have gone up by 14.1 per cent; the gain would have been 21.2 per cent if the tax rate was 30 per cent. Latest estimates put corporate tax collections at Rs 16,485 crore in fiscal year 1996.

Here's the last bit of number crunching. Had the zero-tax companies paid their taxes in the last three years, even at 20 per cent, the total gain to the Government would have been Rs 5,328.25 crore.

A note on the sample: All companies that made a net profit but did not pay taxes in fiscal 1995 have been taken.

Tags