Today the subject of corporate tax is reduced to just a line item in the profit and loss account
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AndreyPopov
There were times in 1980s and 1990s when corporate tax as a subject consumed enormous time in board rooms with animated discussions on the pros and cons in taking tax positions. In fact, promoters, chairmen and directors would analyse tax opinions word by word and thereafter come to a considered view on how to proceed.The primary consideration then was — would a risky position lead to protracted litigation resulting in needless penalty and consequent dent to the reputation of the company? Boards then took their own call and used legal opinions only as reference points. Those were days when the effective rate of tax after all deductions was around 20 per cent and the nominal tax rate was around 50 per cent.The gap we attributable to capex based incentives, backward area benefits, export concessions, etc. Times have changed as also the overall business environment and the tax ecosystem.The role of a specialist taxation manager in companies, which was important those days, has been subsumed into the overall ‘finance and accounts’ function. Market forces have also forced the boards to bestow attention on subjects that are futuristic, rather than brainstorm tax and corporate law matters.Shift in focusToday the subject of corporate tax is reduced to just a line item in the profit and loss account. The only macro question raised is what is the tax provision as a percentage of pre-tax profit? If the number is around the nominal rate of tax, say 25 per cent, the discussions end right there.The focus has now shifted to tax compliance and also technology interplay in tax management. Tech aided tools are employed to ensure that the compliance engine works seamlessly with almost zero default. Companies take tax positions when the stakes are high based on commercial considerations rather than interpreting the letter of the law. The mindset today is: “ When there is a doubt pay the tax and sleep peacefully.”Tax adventurism seems very clever, but hits you hard in the long term as the likes of Vodafone and Cognizant have realised. The days of leaning on tax concessions to reduce the corporate tax and bolster profits and reserves are gone.Attention on GSTThe competitive landscape of today is all about staying relevant and dealing with market dynamics rather than fiddle with tax provisions. There is also the shift of attention to GST and the issues around planning and compliance with the GST legislation.Boards are now discussing how GST litigation can be minimised, which includes dealing with the plethora of show-cause notices which are keeping the lawyers busy on the legality of such notices.The concern in this area is around whether such demands (sometimes frivolous) are to be treated as contingent liabilities or whether to make the required provisions in the accounts.The age old controversy around tax planning and tax avoidance is losing its sheen on account of the reasons mentioned above.In a country where only 6.8 per cent of the population files a return of income and 2.2 per cent pays tax there is still this debate around increasing the tax base and better awareness around compliance. The attendant question is whether the tax rates are high compared to other countries, acting as a deterrent to better compliance.The maximum marginal rate for an individual in India today is 39 per cent against a global average of about 30 per cent. Compliance is basically a cultural issue and nothing to do with tax rates. The late Nani Palkhivala once mentioned: “Even when you have zero per cent tax rate there will still be tax evasion in this country.”The writer is a chartered accountantPublished on July 15, 2026
