← Business Metric: Financial (all topics)
Current tax to PAT (effective tax rate)
What it is
Tax actually payable for the year, as distinct from deferred tax, measured against reported profit. Comparing it with the statutory rate shows whether reported profit is being taxed as economic profit
A persistent gap deserves explanation
Impact on industries
- Cash tax paid is difficult to manipulate, so a normal effective rate corroborates that reported profit is real
- An unusually low cash tax charge alongside strong reported profit can signal aggressive accounting, since the tax authority sees a different number
- Large deferred tax balances defer the cost rather than remove it, so reported profit may overstate what is distributable
- Legitimate reasons exist - tax holidays, accumulated losses, incentive schemes - so the gap is a question rather than a conclusion