Chidambaram Tax to Cut Profit at Indian Companies Next Year

Finance Minister P. Chidambaram’s proposal to increase levies for Indian companies with pretax income of more than $1.8 million may reduce earnings by 2 percent, said analysts including Deven Choksey, managing director of K.R. Choksey Shares & Securities Pvt.

Chidambaram is imposing a 10 percent surcharge on companies with pretax earnings in excess of 100 million rupees ($1.8 million), according to budget documents presented in Parliament yesterday. The additional levy on the companies will increase their tax payments by as much as 6 percent, said P. Phani Sekhar, a fund manager with Angel Broking Ltd. in Mumbai.

The government is raising taxes for people earning more than 10 million rupees a year to revive growth from a four-year low and narrow the widest budget deficit among BRIC nations as Prime Minister Manmohan Singh prepares for elections next year. Chidambaram is boosting spending on women and rural sectors.

“Companies’ profit growth will be much slower this year because of the higher taxes,” said Kamlesh Kotak, head of research at Asian Markets Securities Pvt. in Mumbai. “It’s a triple whammy of higher taxes, slower growth and the coming elections.”

The benchmark S&P BSE Sensex index rose as much as 0.6 percent and was 0.4 percent higher as of 10:57 a.m. in Mumbai. The gauge fell 1.5 percent yesterday to the lowest since Nov. 27.

Profits at 43 percent of the Sensex companies trailed estimates in the quarter ended Dec. 31, compared with 40 percent in the previous two quarters, data compiled by Bloomberg show.

Earnings Forecast

Oil & Natural Gas Corp., India’s biggest profit-making company, may report a 10 percent increase in profit for the year beginning April 1, according to the median of 11 analysts’ estimates compiled by Bloomberg. Net income at Reliance Industries Ltd. may rise 4.4 percent and at Wipro Ltd. may climb 8.2 percent.

Chidambaram aims to cut the budget deficit to 4.8 percent of gross domestic product in the 12 months starting April 1 after a 5.2 percent gap in 2012-2013. The shortfall, which was 5.8 percent in 2011-2012, is the widest in the BRIC group, which also includes Brazil, Russia and China.

The government’s total expenditure will climb to 16.7 trillion rupees in 2013-2014 from an estimated 14.3 trillion rupees this financial year, according to the budget documents. Projected spending on a subsidy program ranging from diesel to food and fertilizers will decline about 11 percent to 2.2 trillion rupees.

A report yesterday showed the $1.8 trillion economy rose 4.5 percent in the three months through Dec. 31 from a year earlier, the weakest pace in almost four years.

“The country needs as much investments as possible in a slowing economy, but the finance minister is also constrained and requires revenue,” Angel’s Sekhar said by phone from Mumbai. “For the companies, the good part is that it’s for a year and they will have to adjust. Their dividend payouts may be cut.”

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