With the current financial year coming to a close soon, the Central Board of Direct Taxes ( CBDT) has asked the Income Tax department to speed up select black money and tax evasion probe cases which require cooperation fromforeign agencies under the existing bilateral treaties. Officials said the CBDT has asked taxman to send it all such cases for exchange of information which are getting ” time barred” by March 31.
Business Standard, New Delhi, 9th Feb. 2016
Govt considers entity level taxes for infrastructure firms instead of SPV level taxes
In what could boost the growth of the infrastructure companies, which are currently reeling under the burden of massive debt, the government is looking to allow them to file a consolidated group tax return, a person familiar with the development said.
This means, infrastructure companies would be able to consolidate profits and losses in all their subsidiaries and pay taxes as a single entity.
Currently, these firms treat each project as a separate entity and the performance of one such operation–mostly registered as a special purpose vehicle (SPV)–is independent from another such operation.
The government is conducting a feasibility research to find out if a model of allowing companies to consolidate the SPVs would lead to any loss in their tax revenue, the person told ET. “Currently, the government doesn’t know if allowing such a leeway would lead to increase or decrease in taxes.“
The government could bring the first phase of the initial changes as early as in the upcoming budget, the person said.The idea is to push the growth agenda.
Industry trackers said that even if it leads to loss in tax revenues for the government, giving such a sop to infrastructure could trigger a much-needed growth in the sector.
Most infrastructure companies in the country are struggling to service their existing debt. While some companies, particularly in steel sector, have already started defaulting, many more could do so in the coming months, experts said.
Currently, due to bids for projects or fi nancing requirements, most infrastructure companies have created different SPVs under one vertical and are paying taxes separately, said an industry expert who requested not to be named. “There are taxable profits in certain SPVs and losses or unabsorbed depreciation in others, leading to different tax outgo in different subsidiaries,“ he said.
Industry experts also point out that if the government is able to push this reform, then many other issues that in frastructure companies face could also be reduced substantially. One of the main reasons for tax disputes between the revenue department and infrastructure companies currently is how the expenses are charged by one SPV to another, or by holding company to an SPV .
“Most of the employees (of an infrastructure company) are based in the holding company and their costs need to be cross-charged to various SPVs. This leads to a very precarious situation as the cross charge amount has to be precisely at arm’s length because income tax officer can attack the SPV for making excessive payment or claiming excessive tax holiday ,“ said Hemal Zobalia, partner, India tax leader for infrastructure and energy sector, at Deloitte India. “This puts the Infrastructure companies between the rock and a hard place situation,“ he said.
Taxing companies instead of SPVs could be based on tax framework in the US, France, Australia and New Zealand, a person familiar with the development said. The government had taken recommendations from companies and industry experts in this regard in the first week of January.
Many infrastructure companies could be able to pass on the benefits of one project to another if the tax reform is passed.
Currently, top companies could be sitting on stressed debt of anywhere close Rs.5 lakh crore. Many banks, including the public sector banks, are looking to convert their debt to equity in these companies through strategic debt restructuring. The banks are hoping that they would be able to turn around the business with the help of some external help and then sell the stake in the companies to investors, including the private equity investors.
The Economic Times, New Delhi, 09 Feb 2016
Budget may kill excise exemptions for some grocery items in preparation for GST
Your monthly grocery bill could rise after the Budget as the government is considering the elimination of excise duty exemptions for some items and moving up the lowest rate currently applied on many goods to set the stage for the goods & services tax (GST).
Green tea, dairy spreads, yoghurt, cheese, ice-cream, frozen food products, pasta, ready-to eat foods, packaged fruit juices and soya milk could see excise duty kicking in or going up to the standard rate of 12.5%. Many of these products currently attract nil to 6% excise.
“A number of exemptions in the excise duty have been sit ting for years,“ said a government official. “With GST round the corner, it makes sense to take a relook at the existing structure.“ He pointed out that a number of exempted items already attract value ad ded tax (VAT) in some states.
The government is expected to give a renewed push to GST in the Budget session by at tempting to win the support of Congress for the constitutional amendment Bill that needs to be approved before the new tax can be rolled out. The government’s deadline for GST is April 1 but it will be difficult to meet this.
More than 300 goods are exempted from excise duty while there’s a blanket exemption for manufacturers with a turnover below Rs 1.5 crore. The turnover threshold for levy of VAT in states is Rs 8-10 lakh while that for GST is expected to be Rs 25 lakh.
The list of exempted items under GST will in any case need to be revised substantially so that it only contains essential items. This is key to keeping the GST rate low “The lower the rate and the more the commodities that are taxed at this lower rate, the higher will be the standard rate just as a matter of arithmetic,“ said the panel headed by Chief Economic Adviser Arvind Subramanian to suggest a revenue-neutral rate for GST.
The committee had suggested a standard GST rate of 17-18% and a concessional rate of 12%.
A call on the proposal will be taken in line with the government’s overall philosophy of boosting manufacturing in the country, said the official cited above.
That’s because exemptions have the effect of undermining industry competitiveness. Excise on inputs used is not usually exempted and this tax then gets embedded, hurting the sector itself. The government has scrapped exemptions on a number of pharmaceutical products as part of its plan to make domestic manufacturing competitive.
Experts said GST provides the government a good opportunity to clean up a system complicated by a plethora of exemptions and make everything subject to simpler but universally applied rules.
“An ideal GST regime would mean that there are no exemptions and neither are goods and services taxed at concessional rates,“ said Anita Rastogi, partner, indirect tax, PwC. “Since GST may not come in April 2016, the government may look at taking steps towards GST by way of removing a few exemptions. This is also because exemptions break the credit chain which then leads to burden of additional cost on ultimate consumers.“
ET VIEW
Lower GST for Food Items
It makes sense to withdraw exemptions ahead of the roll-out of GST. Multiple rates are not necessarily inimical to GST. Merit goods such as food items should attract a lower rate than, say, the standard 18% rate. Retail prices will drop with GST as manufacturers will get credit across the value and production chain for all the taxes paid on inputs, making production more efficient. Exemptions will snap the value added chain, mess up the tax system and must be eschewed.
The Economic Times, New Delhi, 10 Feb 2016
FALL YEAR Indian unit has given a negative return of 1.71% since Jan 1, analysts don’t rule out further weakness
The rupee seems to have lost some steam, that is, if yougo by data on total investment returns, or even on the basis of pure fundamentals. Unlike the previous year, the Indian currency has clearly lost the top slot among emerging markets so far in 2016, as concerns over growth push investors to park their money in safer places, like the US.
The local unit is now one of the three worst performing EM currencies, yielding a negative return of 1.71% against 2-5% positive returns by the Malaysian Ringgit, Indonesian Rupiah, Thai Bhat and the Brazilian Real, show data from Bloomberg.
“The rupee has underperformed some of its emerging markets peers in 2016, but over a longer horizon (2014 or 2015), it had remained comparatively much stronger,“ said Saugata Bhattacharya, chief economist at Axis Bank. “This needs to be balanced with incentivising capital inflows, since the currency return of an investment in India would be lower with a falling rupee.“
There’s a case for further depreciation as a relatively stronger rupee may have contributed to a loss of export competitiveness, dealers said. So far this year, foreign portfolio investors have sold a net of Rs.11,665 crore in domestic equities versus more than Rs.13,000 crore invested last year during the same period, show data from NSDL, a depository .
Last year, the rupee’s total investment returns were at about 2.5% against China’s 0.20%, marking the local unit as a top performer among emerging markets peers.
“With fiscal distress and macro weakness, you throw in stress banking and real estate, two major sectors for the economy,“ said Anindya Banerjee, currency analyst, Kotak Securities. “In totality, it is a macro story that is now trying to take the sheen out of the rupee as overseas investors exited India investments.“
In ter ms of Real Ef fective Exchange Rate, an indicator, the rupee has appreciated in the past two years, which gives some space for relative depreciation.
Moreover, in cross currencies, investors were earlier seen going long on the rupee while going short in other emerging market currencies suggesting short term bullishness on the local unit. But now, they are seen squaring off positions with a weakening dollar on the back of mild US rate hike expectations, dealers said.
The Economic Times, New Delhi, 11 Feb 2016
HELPFUL MODE Move may translate into double-digit returns for subscribers; earlier the ministry was planning to hike interest rate to 8.95%
The Employees’ Provident Fund Organisation is considering doling out a Rs 750 crore bonus to its subscribers for
2015-16 instead of raising the interest rate, a first of its kind move that could translate into double-digit returns for crores of workers on their retirement funds. EPFO had earlier proposed raising the interest rate to 8.95% in the current fiscal year, compared with 8.75% in 2013-15 and 2014-15, based on its earnings estimate for the year.
The proposal had met with some resistance from the finance ministry as it would put pressure on it to raise interest rates on small savings schemes and would not be sustainable go ing forward.
Therefore, the retirement fund body that manages the savings of more than 5 crore organized sector workers is considering a onetime bonus payment.
“We are considering the option of bonus for the first time because this would substantially benefit people in the low income bracket who are otherwise not entitled for an income tax exemption for deductions under PF,“ a senior government official, who is privy to the proposal, told ET.
Only those subscribers who have contributed for 12 months in a row would be eligible for the bonus. As per EPFO’s internal estimate, around half its subscribers would get bonus this year if the proposal went through with this condition.
“In a way we are introducing differential interest rate for our subscribers under which low income people would get double-digit interest rate for their deposits in the current fiscal (year),“ the official said, speaking on the condition of anonymity.
The February 16 meeting of EPFO’s Central Board of Trustees it includes representatives of the government, employees and employers would weigh both options (bonus payout and an increase in interest rate) and will make a final decision. To become effective, it will then have to be notified by the finance ministry.
The proposal of differential in terest rate, however, is likely to face stiff opposition from trade unions including RSS-affiliate Bhartiya Mazdoor Sangh.
“We don’t appreciate the idea because it is only benefiting a few and not all EPFO subscribers. What they propose to distribute as bonus is the surplus income from the contribution of all employees and hence it should be equally distributed,“ Vrijesh Upadhyay of BMS said.
EPFO provides the interest from the returns on investments it makes, without any assistance from the government. So, workers’ representative are of the view that there is no difficulty in providing a higher rate of interest for the current fiscal year.
The Economic Times, New Delhi, 11 Feb 2016
The finance ministry said on Wednesday that tax collections stood at Rs.10.7 lakh crore in the first 10 months of FY16.This constituted 73.5 per cent of the Budget estimates ( BE) of Rs.14.5 lakh crore. According to the ministry, direct tax collections might fall short of the Budget target of about Rs.8 lakh crore in FY16 but it would be offset by robust indirect tax collections. As such, direct tax collections might have alower figure in the revised estimates of 2015- 16, compared to BE, while the indirect tax mop- up would have ahigher figure than BE of Rs.6.5 lakh crore. The ministry hoped it would meet tax collections target in FY16.
Amid critics doubting the latest gross domestic product ( GDP) numbers, which showed the economy growing 7.6 per cent in FY16, Revenue Secretary Hasmukh Adhia said the latest tax figures supported the GDP data. On the first upload on YouTube by the finance ministry, Adhia said direct tax collections were up 10.9 per cent at Rs.5.2 lakh crore till January of FY16 over that in the year- ago period, while indirect tax mop- up grew 33 per cent to Rs.5.4 lakh crore. Within direct tax collections, corporate tax rose 10.4 per cent and personal income tax by 11.8 per cent. The government has achieved 65 per cent of BE direct taxes in this period. Indirect tax collections in the first 10 months constituted 80 per cent of BE for 2015- 16. The revenue department expects an additional Rs.40,000 crore to come in from indirect taxes, which will offset the shortfall in direct tax mopup.
Analysing the trend in tax collections, Adhia said electrical machinery delivered 34.4 per cent higher Customs duty collections till January, compared to what it yielded in the corresponding period of the previous year. Similarly, imports of “ other machinery” brought in 27 per cent higher revenues from Customs duty.
Assessing the trending of growth in services sector, the average growth of service tax stood at 27.2 per cent during the first 10 months of 2015- 16 on a year- on- year basis.
Among the various sub- segments, bank and financial services saw service tax rise 39.9 per cent. Similarly, goods transport and services yielded 41 per cent higher service tax collections in the said period. The recent advance estimates released by the Central Statistical Office showed financial, real estate and professional services have been rising substantially.
Business Standard, New Delhi, 11 Feb 2016
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