business standard updates 29-11-2012

Govt plans 2% raise in excise duty, service tax

VRISHTI BENIWAL New Delhi, 28 November The finance ministry is considering aproposal to raise excise duty and service tax by two per cent to 14 per cent each in the Union Budget for 2013- 14. The move is likely to help the ministry collect about ₹ 30,000 crore. Certain exemptions may also be rolled back. “It is being debated whether both excise duty and service tax should be increased to 14 per cent. Certain exemptions may be removed and Customs duty on crude oil may be restored. A final decision would be taken close to the Budget,” said a finance ministry official, on the condition of anonymity. Peak Customs duty, however, might be retained at 10 per cent. In June 2011, Customs duty on crude oil imports had been done away with. These steps, proposed in preBudget meetings, are aimed at improving the government’s tax- togross domestic product ( GDP) ratio. Though most Budget announcements come into effect from a new financial year, changes in excise and Customs duties have immediate effect. For instance, even if Budget 2013- 14 is announced on February 28, the government would avail of the additional two per cent excise duty rise in March. The ministry official said it was argued even in the Goods & Services Tax ( GST) regime, the combined rate for services would be 16 per cent. Though increasing the excise duty to 14 per cent would raise the rate to pre- crisis levels, most in the government feel both service tax and excise duty should be kept at the same level. At this rate, service tax would be at an all- time high. Once GST is implemented, both the Centre and states may levy service tax at eight per cent each. Currently, states cannot tax services. Goods, however, are likely to be taxed at the peak rate of 20 per cent in the GST regime. At a time when states already levy value- added tax at 12.5 per cent, tax of 14 per cent by the Centre would make goods expensive. Though crude oil prices ( Indian basket) are still at the June 2011 level of about $ 110 a barrel, the finance ministry wants to restore Customs duty on crude oil, as this has put undue pressure on the exchequer. In 2011- 12, it had to forgo revenue of about ₹ 58,190 crore, owing to the fall in Customs duty on petroleum products. Officials said, while taking a decision on taxes, the government would also keep in mind the results of the Assembly elections in Gujarat. It might find it a little difficult to opt for a potentially unpopular move like this in case of an antiCongress verdict. In fact, a section in the ministry has been advocating acut in the rates to aid growth and revive sentiment. Though this may be a good move, politically, because the cost is passed on to end consumers, the ministry is worried about its fiscal implications. An increase in taxes may also affect growth, which had already slipped to 5.5 per cent in the first quarter of this financial year. In 201112, too, the ministry had increased excise duty and service tax by two per cent each. Restoration of Customs duty on crude oil & rollback of exemptions likely BOOSTING REVENUES [1]Standard central excise duty rate [1]Service tax rate ( Figures in %) Note: In 2008- 09, excise duty was cut in two phases by six percentage points starting from stimulus package in December 2008 and service tax by two percentage points Source: Budget papers and government documents 15 13 11 9 7‘ 07- 08 ‘ 12- 13 12 14 12

2- tier panel to smoothen FDI ride

SANJEEB MUKHERJEE New Delhi, 28 November The government is looking at setting up a two- tier panel to streamline internal trade for unleashing benefits of foreign direct investment in multi- brand retail. The first one will be an interministerial tier to be headed by Consumer Affairs Minister K V Thomas. It would have Finance Minister P Chidambarm, Agriculture Minister Sharad Pawar, Commerce & Industry Minister Anand Sharma and Corporate Affairs Minister Sachin Pilot, among others. Select ministers in charge of consumer affairs from states and industry representatives will also be part of this group. The second tier will be formed at the bureaucratic level, where secretaries of all departments concerned will be members. The committee will review tax spread between states, the Shops and Establishments Acts and integrated logistics hubs for reforming the country’s internal trade structure. The development comes as the issue of foreign direct investment in multi- brand retail continues to divide political parties. Officials said the committee would suggest measures to smoothen internal trade which would enable full unlocking of the economic benefits of FDI in multi- brand retail. The Cabinet, while clearing a proposal to allow up to 51 per cent FDI in multi- brand retail in September 2012, had directed a high- level group under Thomas to examine internal trade- related issues and suggest remedial measures. Last week, Thomas said that the inter- ministerial panel on internal trade reforms would be set up soon. He also discussed the matter with Prime Minister Manmohan Singh. According to officials, the Consumer Affairs Department, for the time being, has identified strengthening the Essential Commodities Act, a mechanism outside the municipal limits, to facilitate smooth flow of traffic and reforms in Agriculture Produce Marketing Committee ( APMC) Act, a mechanism to bring farmers, processors, retailers closer and link agriculture production to market and consuming centres. Strengthening the spot exchanges and improving transparency in trading and storage of essential commodities are some of the other broad issues which the high- powered committee is expected to deliberate upon. “ The issues flagged on internal trade and composition of the panel to examine those has been floated for comments by other ministries concerned with FDI in multi- brand retail, and once all the details are available, the agenda could be altered,” said a senior government official. Consumer Affairs Minister KV Thomas will head the inter- ministerial panel

>YOUR MONEY Retail investors find it easy to complain. But they seldom help themselves by doing things on time – much like filing of returns. This is a good opportunity to make amends. With the November 30 deadline looming large, they should complete their Know- Your- Customer ( KYC) guidelines with the respective fund houses. The documents required include your PAN card, father’s name, nationality, marital status, in- person verification and even net worth. Complying with the new KYC is extremely important because it will allow investors to put money in all Securities and Exchange Board of India ( Sebi)- regulated financial intermediaries such as stocks, mutual funds, depository participants, portfolio managers, collective income schemes and venture capital funds. However, if you do not or are unable to comply with the guideline, Sebi has allowed investments in existing schemes to continue. In other words, your systematic investment plans ( SIPs) will not suffer. But before you do the KYC, here is a tip. Do not just sign on the document and let the distributor fill the rest of the columns, especially the net worth one. In the past, investors have found themselves in deep trouble because their income, net worth and investments in the form were widely different. For instance, financial planners say notices were sent to clients who had shown a couple of lakhs as income and ₹ 60- 70 lakh as investment – most times, it was filled by someone else. While meeting the deadline for everyone may be difficult for practical reasons, for some may be travelling abroad or unable to comply with the in- person verification due to health reasons, but given the tough market conditions, most may just delay it because they are not planning to invest money immediately or the near future. Sebi, on its part, could have been tougher on implementing the KYC. For retail investors, this is one step that would make investments across a number of instruments so much easier. Both fund houses and distributors should ask investors to do it immediately. But given the consistent fund outflow from equities, fund houses might not want to enforce this for the fear of more folio losses – the industry has already lost 300,000 folios between September 2011 and September 2012. But they could use the carrot that there will be missed opportunities when the market conditions improve, if investors do not do the KYC now. “In fact, if Sebi wants to be really strict, they could disallow withdrawal unless the KYC is done. This will be a tougher measure than not allowing them to invest money,” says financial planner Gaurav Mashruwala. The next step needs to be taken by the government. By roping in the Reserve Bank of India, Insurance Regulatory and Development Authority and Pension Fund Regulatory and Development Authority to introduce a common KYC for all financial transactions, life will become easy for everyone, including tax authorities. JOYDEEP GHOSH & TANIA KISHORE JALEEL Investors should stick to deadline of Nov 30 or be ready to lose an opportunity to invest Sebi should be tougher on implementing KYC norms PALAK SHAH