Business standard updates 10-4-2012

Parliamentary panel to take up Companies Bill today

GYAN VARMA New Delhi, 9 April Blaming the Union government for the delay in the passage of the Companies Bill, the standing committee on finance is likely to submit its report on the revised Bill before the beginning of the second half of the budget session. “The members of the standing committee on finance are meeting tomorrow to discuss the Companies Bill. It is expected the committee would submit its report before the start of the second session of the Budget. We are working towards it, there should be no problem,” said sources privy to the development. Chairman of the committee, Yashwant Sinha, has often blamed the Union government’s “attitude” for the delay in the Companies Bill. Though the parliamentary committee had submitted its report on the Bill in the monsoon session of Parliament in 2010, the Union government had brought in a different version of the Bill in the winter session in 2011, he said. Sinha argued since the government had considered the suggestions of other stakeholders after the report was submitted by the standing committee, the members had decided to start discussions on the Bill again, as it was a new legislation. On the basis of the report submitted by the panel, the government has agreed to incorporate 157 of the 178 amendments. It had, however, introduced 22 changes. The revised Companies Bill was tabled last year in the winter session of Parliament. The changes include the ones covering the definition of a private company and the number of members it can have, along with a modification of provisions related to private placements and the rotation of auditors.

Ministry wants bankauditpanels to getmore time to vetearnings

MANOJIT SAHA Mumbai, 9 April The Union finance ministry has proposed that banks give their balance sheet to their respective audit committees at least two days before their boards of directors meet for finalising the results. In a recent communication to banks, the proposal was suggested and feedback sought. The ministry feels giving the audit committee more time would enable the latter to do "value addition". The audit committee is part of the bank board. At present, both the audit committee meet and the board meeting take place on the same day, because of the price-sensitive nature of the information. The bank management first presents the balance sheet to the audit committee, which then approves and gives it to the full board on the same day. The results are communicated to stock exchanges after the board approves these. Since banks are listed entities and the information is price-sensitive, bankers fear giving these to the audit committee two days prior to the board meeting could increase the chance of leakage. The ministry, however, has proposed the balance sheet be given to the audit committee on weekdays, when the stock markets are closed. Bankers said the proposal was not practical. The chairman of the audit committee, who is a chartered accountant, is appointed by the government. Other members include an executive director of the bank and a couple of other board members. The auditors are appointed by the bank. The finance ministry has said the proposal has been forwarded after auditors gave feedback that they needed more time to scrutinise the numbers. “The chairman of the audit committee, who is appointed by the government, is an outsider, while the auditors in the bank are appointed by the chairman. We are not comfortable with the idea of sharing price-sensitive information with the audit committee two days prior to the board meet,” said the chairman and managing director of a public sector bank. In their feedback, some banks are likely to give a thumbsdown to the idea. Bankers also pointed out that the auditors are not always above suspicion, as was evident from the bribe-for-loan scam in 2010, where the role of auditors of public sector banks came under the scanner of investigating agencies. AT ODDS Bankers feel the proposal is notpractical as the institutions are listed entities Bankers fear leakage of price-sensitive data if proposal is implemented

PM rallying for consensus on implementing GST

GYAN VARMA New Delhi, 9 April Industry may have started losing hope that the United Progressive Alliance (UPA) government would be able to implement the Goods and Services Tax (GST) soon, as it requires a constitutional amendment, but Prime Minister Manmohan Singh is taking personal interest in the matter and talking to chief ministers to build a consensus, especially with opposition-ruled states. The push by the prime minister for an early implementation of the GST was palpable when he met Bihar chief minister Nitish Kumar and his deputy Sushil Modi on Friday to discuss the power situation in the state. Soon after the meeting, Singh called Modi for an exclusive discussion on the GST and asked him to try and build a consensus on the issue. Singh told Modi to take personal interest in building a consensus on the GST and urged him to speak to all Opposition-ruled states, specifically to states in which the Bharatiya Janata Party (BJP) was in power. The UPA is aware of the fact that without the BJP’s help, aconstitutional amendment would be difficult to achieve. Modi is scheduled to meet finance minister Pranab Mukherjee on April 17. While Modi may ask the finance minister to reconsider his decision to stop compensation to states for the revenue loss due to a cut in the Central Sales Tax (CST) rates, Mukherjee is likely to urge the chairman of the empowered committee of state finance ministers to bring states on board for early implementation of the GST. The committee would meet on April 18 to discuss the issue of CST compensation, the Budget proposal to introduce a negative list for taxation of services by the Union government and progress on information technology platform GST-Network, said a finance ministry official. The meeting would be crucial as states may try to bargain hard with the Centre before moving ahead on the GST rollout. Miffed with the government’s decision to discontinue CST compensation and introduce the negative list without taking their concern on board, states have been asking the Centre to increase the CST rate to four per cent or fully compensate these for the losses and keep items already taxed by the states out of the service tax net. CST, atax on the inter-state movement of goods, was earlier cut to two per cent from four per cent in two phases. Interestingly, almost two months earlier, finance minister Pranab Mukherjee had told a few chief ministers implementation of the GST would be difficult because major economic policies were initiated in the first or the second year of a government. Since elections to the Lok Sabha are scheduled for 2013-14, the government doesn’t want to implement the GST yet, as it would take at least two years to stabilise. Implementing the GST in the last year could have a rattling effect, and this could affect the Congress’ performance in the Lok Sabha elections in 2014. Senior members in the Union government said Modi, chairman of the empowered committee on the GST, had assured the prime minister he would talk to all chief ministers and state finance ministers to build a consensus. Modi also told Singh some of the senior ministers of the government were unsure whether the GST should be implemented before the 2014 general elections. There is also a trust deficit between the Union government and Opposition-ruled states, which suspect the Union government would not compensate these for the losses they are incurring. Since the Centre had only provided ~300 crore as the CST component to states in the Budget, the finance ministry has categorically said there would be no compensation for 2011-12 and the Budget for 2012-13 is silent on the CST compensation, many states believe the UPA would not compensate these for the GST as well. Prime Minister Manmohan Singh (right) with finance minister Pranab Mukherjee during a delegation-level meeting with Qatar’s Emir, Sheikh Hamad bin Khalifa Al Thani, in New Delhi on Monday. PTI PHOTO

Raise property tax to fund urban infra: Panel

DILASHASETH New Delhi, 9 April An expert committee in the urban development ministry has recommended an increase in property taxes as astep to finance urban infrastructure during the 12th five-year Plan. A report by the committee has estimated ~40,000-50,000 crore would be required for over a period of less than 20 years. The sub-committee on financing urban infrastructure for the 12th Plan has said the rise in property tax should be higher for properties given on rent, compared to self-occupied units to tap the increased rental value. Revenue collections of the Bangalore City Corporation rose from ~400 crore in 2007-08 to ~1,200 crore in 2011-12 through an increase in property taxes. This needed to be emulated by other cities, the report said. Reiterating the need for municipal bodies to raise revenue from own sources, the panel recommended the already existing, but not so popular, tool of ‘municipal bonds’ . It emphasised a number of regulatory, supply and demand-side constraints needed to be tackled to promote municipal borrowing as a significant source of funding local bodies. So far, taxable municipal bonds have helped city governments raise ~445 crore from domestic capital markets, and this has been used to fund water and sewerage schemes or road projects. After Ahmedabad, other cities that accessed capital markets through municipal bonds without state government guarantees since 1998 include Nashik, Nagpur, Ludhiana, and Madurai. Municipal bonds have played a key role in creating urban infrastructure assets in the United States and Canada. While municipal bonds form nearly 10 per cent of the debt market in the US, in India, only one per cent of the contribution by urban local bodies is funded by municipal bonds. The report also talked of increasing the floor area ratio (FAR) and enhancing the charges for additional FAR. The Planning Commission had, in a recent report, recommended additional FAR for at least 50 per cent of the area rate. A report by the committee has estimated ~40,000 -50,000 crore would be required for developing urban infrastructure over a period of less than 20 years

E-filing taxpayers won’thave to acquire a digital signature

SANTOSH TIWARI New Delhi, 9 April The income tax department is set to introduce a free-of-cost and easy-to-operate electronic signature facility to file income tax returns electronically. The facility will help taxpayers who do not have a digital signature. It will save them from the mandatory requirement of sending a hard copy of the return filed electronically through speed post to the department’s central processing centre in Bangalore. Acquiring an electronic signature will not involve any cost for the taxpayer, as it will be provided by the department. Currently, only those having digital signatures acquired through specified vendors by paying the required charges need not send the hard copy of the return to the department after filing electronically. A senior income tax department official told Business Standard the electronic signature mode was based on international best practices and would benefit taxpayers as well as the government. He said the necessary clearances from the ministry of information technology (MIT) had been taken to introduce the facility. The final approval from the finance ministry to implement it from this year itself is likely soon. The official said once implemented, the facility was likely to be extended to the entire tax system. At present, e-filing with a digital signature is compulsory for corporate assesses and for non-corporate assesses liable for audit. Those who wish to file e-returns without a digital signature need to take ahard copy of the e-filed return and submit it after signing it. E-filing has been made compulsory from the assessment year 2012-13 onwards for individuals and Hindu undivided families if the total income assessable during the previous year exceeds ~10 lakh. The number of e-returns is growing at a phenomenal pace and has crossed the 16-million mark in 2011-12 from about nine million in the previous year. The move will impact the business of the postal department and vendors in the business of providing digital signatures. To obtain a digital signature, the taxpayer needs to provide his address, an identity proof and a photograph to the vendor with the requisite charges. A digital signature costs ~900-1,000.and expires in a year for individuals. For companies, it lasts two years. The process for renewing a digital signature is the same as that for applying for a new one. In the case of an electronic signature, all the required information is already available with the tax department through the permanent account number (PAN) and the tax returns filed earlier. The e-filer will be required to provide certain information on the income tax web site related to the previous year’s return. If the information matches the details already available with the department, a unique Personal Identification Number (PIN) would be sent to the taxpayer through mobile phone and email. The taxpayer will have to enter this PIN at the time of e-filing the return. An income tax official said a strong safety system would be put in place so that there was no security risk or possibility of misuse. Tax dept to provide free electronic signature, will eliminate need to mail hard copy of return Once implemented, the facility is likely to be extended to the entire tax system

FIIs meet FinMin officials on GAAR

PRESS TRUST OF INDIA New Delhi, 9 April Amid concerns of foreign investors over the tax treatment of investments, FIIs met senior finance ministry officials for the second time within seven days, to discuss the provisions of anti-tax avoidance rules, or GAAR. “The meeting ended on a positive note. We are examining the FIIs’ concerns. Our people are working on the rules,” a senior finance ministry official said. The meeting was also attended by representatives from the market regulator, Sebi. Last week, foreign institutional investors (FIIs) met Finance Secretary R S Gujral over the issue. During the meeting, finance ministry officials assured them that the General Anti-Avoidance Rule (GAAR) provisions would be invoked only in case of “impermissible arrangements”. “If they are in a permissible arrangement, clearly they are governed by the particular treaty and GAAR does not get invoked at all. If it is an impermissible arrangement, then GAAR gets invoked and the treaty does not help them,” Gujral had said. In the Finance Bill 2012, Finance Minister Pranab Mukherjee has proposed to include GAAR provisions, which is aimed at targeting deals whose purpose is to avoid tax. Foreign investors fear that the proposed rule could apply to holders of Participatory Notes (P-Notes), the instrument through which foreign entities not registered in India could invest in the stock market, issued by FIIs. Mukherjee has said that people investing through PNotes would not be liable to tax in India, and the finance ministry has indicated that clarification on the GAAR provisions would come when the Finance Bill is passed by Parliament. FIIs have assets under custody of more than ~10 lakh crore, or 17 per cent of the capitalisation of India’s equity markets. Further, these entities also invest in the Indian government and corporate debt.