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MOSL: ECOSCOPE: Where do unlisted corporate profits come from?

ECOSCOPE: Where do unlisted corporate profits come from? Corporate taxes confirm higher and resilient profits outside of listed companies

 

• About six months ago, we had released a estimating India's aggregate corporate profitability, including the Unlisted Corporate sector. It became clear that the Unlisted Corporate sector is not only more profitable than listed companies but has also been more resilient than the latter in pre-COVID years. In this note, we provide further evidence to support this conclusion. Additionally, we identify the sectors where the Unlisted Corporate sector dominates the listed universe.
• One of the glaring pieces of evidence of a highly profitable and resilient Unlisted Corporate sector in India is the comparison between listed companies' profitability and corporate income taxes collected by the Government of India (GoI). While listed companies' profitability (profit before taxes - PBT) fell to 5.4% of GDP over FY16-19 (from the peak of 8.7% of GDP in FY08), the corporate taxes collected by the GoI were only marginally lower at 3.3% of GDP during the corresponding period (down from the peak of 3.9%). As there was no major change in the corporate income tax rate during the period, it confirms that the Unlisted Corporate sector has very high profitability in India.
• Accordingly, the share of listed companies fell from more than 50% of the total corporate taxes collected over FY07-08 to ~40% in pre-COVID years - in line with the fall in share in India's corporate profitability.