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Kelkar plan can save India Inc Rs 7,000 crore

BS Research Bureau in Mumbai

The Kelkar committee's recommendations of abolishing the dividend tax and cutting corporate tax rates can lead to major savings for the domestic corporate sector.

The 2,400 companies, which paid corporate tax of Rs 27,133 crore (Rs 271.33 billion) in the last two years and distributed dividends of Rs 19,531 crore (Rs 195.31 billion), will save almost Rs 6,937 crore (Rs 69.37 billion) annually, based on conservative estimates, if the committee's recommendations are accepted in toto.

Data culled from the Centre for Monitoring the Indian Economy's Prowess database shows that the 2,400 companies are likely to save Rs 4,984 crore (Rs 49.84 billion).

However, if the reduction in the corporate tax, proposed to be phased over a period of three years, comes into effect, the tax savings will be Rs 775 crore (Rs 7.75 billion) in the first year, Rs 1,883 crore (Rs 18.83 billion) in the second year and Rs 2,326 crore (Rs 23.26 billion) in the third year.

The savings on account of the removal of the 10 per cent dividend tax by these corporates will be Rs 1,953 crore (Rs 19.53 billion).

Oil and Natural Gas Corporation will benefit the most. ONGC paid corporate tax of Rs 3,100 crore (Rs 31 billion) and dividend of Rs 1,996 crore (Rs 19.96 billion) during 2001-2002.

The benefits on account of the reduction in the tax will be Rs 570 crore (Rs 5.7 billion) and the savings on the dividend tax will be around Rs 200 crore (Rs 2 billion).

The other major gainers will be Indian Oil Corporation which will save Rs 402 crore (Rs 4.02 billion): Rs 315 crore (Rs 3.15 billion) on corporate tax and Rs 87 crore (Rs 870 million) on dividend tax.

The State Bank of India ranks third in the list of beneficiaries with total savings of Rs 326 crore (Rs 3.26 billion). The bank will save Rs 294 crore (Rs 2.94 billion) on corporate tax and Rs 32 crore (Rs 320 million) on dividend tax.

Reliance Industries is likely to save Rs 284 crore (Rs 2.84 billion) annually, followed by Hindustan Lever (Rs 189 crore), Gas Authority of India Ltd (Rs 151 crore), ITC (Rs 144 crore), Bharat Petroleum Corporation Ltd (Rs 123 crore), Mahanagar Telephone Nigam Ltd (Rs 119 crore) and Hindustan Petroleum Corporation Ltd (Rs 114 crore).

The Kelkar committee has recommended that the corporate tax rate for domestic companies be reduced from 36.75 per cent to 30 per cent.

The corporate tax rate for foreign companies, it suggests, should be reduced from 40 per cent to 35 per cent.

The committee has recommended exempting dividends from taxation in the hands of shareholders and no tax on distribution of dividends by a company.

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