IT Data Reveals Only 2% Companies Pay 92% of Total Corporate Tax

In a bid to increase transparency, the Income Tax Department released the tax data for assessment year 2014-15 recently. But it is no secret that only a handful of individuals file their tax returns on time. The figures for tax returns paint a bleak picture at just 2.8 percent of the population. The situation is the same when it comes to income tax, with only 1.5 percent of the total population paying their taxes on time.

Here are some startling facts based on company data that bring out the crumbling tax return situation in the country.

Out of the total company assesses filing returns, 52% of them don’t pay any tax and file zero income returns.

On the other hand, top 2% of the companies’ filing returns pay the bulk 92% of the total income tax. While 2% of individuals filing returns account for only 62% of the total income tax collections. Here’s a breakdown:

Corporate Versus Individual

Here’s a comparison of tax returns by corporate versus individual.

Moreover, 11% of companies filing returns report set off for brought forward losses.

All companies are not filing income tax returns. As of February 2015, there were 10.17 lakh active companies in India. However, only 70% are filing returns.

The individual income tax data points towards an unequal distribution of income among individuals but the collective data of firms draws attention to many unanswered questions.

Financial Health of Companies Deteriorating

The 52% of companies not paying any income tax and 11% having brought forward losses point to the poor state of financial health of our companies.

It shows that more than 60% of the companies are not making profits. How else do we explain approximately 50% of our companies showing exactly nil income?

Some Obvious Questions Arise...

It maybe because some promoters enjoy hefty salaries and perks as CEOs/MDs, which is tax deductible and, hence, they are less bothered about profits and more about tax incidence.

Burden on the Economy

Companies making losses are a big burden on the economy. While some may genuinely be making losses, it raises suspicion on companies inflating expenses to reduce income and hence tax burden.

It also points towards a system of umpteen incentives, exemptions and deductions which allow companies to report nil income and hence rob government of loss of revenue.

The minimum alternate tax – or MAT – was specifically introduced for this purpose but it seems to be failing.

The Income Tax Department's act of releasing data is a welcome step, but it also needs to analyse this data to prevent loss of tax revenue and punish tax theft offenders.

(This article has been co-authored by Amitabh Tiwari and Subhash Chandra. They are independent political commentators and can be reached at @politicalbaaba and@schandra_100 respectively. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)