GST bill likely in budget session, no pact on kickoff
The Economic Times, January 8, 2010, Page 9
Deepshikha Sikarwar, ET Bureau, NEW DELHI
The Government may introduce a legislation in the budget session of Parliament to make necessary constitutional amendments and facilitate the launch of the goods and services tax (GST) although the rollout of this comprehensive indirect tax reform from the scheduled date of April 1, 2010, seems unlikely.
"The legislation has been finalised and the attempt is to introduce it in the budget session," a government official privy to the development told ET. This will come up for discussion at a meeting of the empowered committee of state finance ministers and union finance minister Pranab Mukherjee on Friday which also will deliberate the new date for the launch of the tax.
The joint working group set up to formulate the constitutional changes has already finalised the draft of the legislation. The working group had representation from the union finance ministry, state governments and empowered committee of state finance ministers.
Constitutional amendments are required for a rollout of GST as states need to be empowered to levy and collect tax on services. At present, the power to levy this tax rests with the Centre. Similarly, the Centre needs the authority to levy and collect tax on trade and levy of GST on imports.
"Tomorrow (on Friday) we will discuss the new date for introduction and compensation formula to the states with the Union Finance Minister," empowered committee of state finance ministers chairman Asim Dasgupta told reporters after a meeting of the panel on Thursday.
States have to be compensated for any loss in revenue on account of the rollout of the tax. Nearly all the taxes levied by the states will be subsumed under the GST and some states could end up losing revenue under the sharing formula.
The Centre and states are yet agree on the nitty-gritty of the tax structure owing to persistent differences on crucial areas such as turnover threshold limit at which the tax will apply. In fact, BJP-ruled states want implementation of the tax only from April 1, 2011. Most states are also against a mid-year launch as it could make the switchover to new regime difficult for traders.
The GST legislation will have to be approved by Parliament for Central GST law and also by the 32 states assemblies to facilitate state GST. "It is very difficult to roll the tax from April 1, 2010 in view of these practical difficulties," a state government official said. The GST, which will replace the major indirect taxes—excise duty, service tax, valueadded tax and other state taxes—with a single levy, will create a national common market at present fragmented because of multiple levies .
TAX VEX
Empowered committee of state fi nance ministers to deliberate on the new date for the launch of GST . The joint working group set up to formulate the constitutional changes has already fi nalised the draft.
Constitutional amendments required for GST rollout as states need to be empowered to levy and collect tax on services. At present, the power to levy this tax rests with the Centre. Similarly, the Centre needs the authority to levy and collect tax on trade and levy of GST on imports. GST legislation will have to be approved by Parliament for Central GST law and also by the 32 states assemblies to facilitate state GST
States have to be compensated for any loss in revenue. Nearly all the taxes levied by the states will be subsumed under the GST & some states could end up losing revenue under the sharing formula
The Centre and states are yet agree on the nittygritty of the tax structure. Most states are against a mid-year launch as it could make the switchover to new regime diffi cult for traders.
Friday, January 8, 2010
GST bill likely in budget session, no pact on kickoff
GST may push cos to rejig, shut units
GST may push cos to rejig, shut units
The Economic Times, January 8, 2010, Page 9
M V Ramsurya, ET Bureau, MUMBAI
Companies with distribution or manufacturing units located across the country to take advantage of the differential tax rates may have to close down some of their subsidiaries and alter business models to minimise initial impact on profitability under the proposed Goods and Services Act.
Most companies—mainly those in the fast moving consumer goods category and in traditional manufacturing sectors—had developed a model of countrywide distribution point system to gain on the different rates prevalent till now. However, with the eventual GST rollout where a uniform tax rate will be levied on both goods and services, such companies will lose out on the advantages of a dispersed presence and might also see an impact on their profitability, say people tracking the implementation of the new tax.
The government has proposed the GST in a bid to simplify indirect tax procedures, broaden the tax base by clubbing services into this uniform tax, and to also minimise the various exemptions earlier being claimed by companies. Firms typically had to work through a maze of multi-level taxes, including central excise, customs countervailing duty, special additional duty, state-level value added tax, central sales tax and service tax. Also, under current tax norms, some states have a zero VAT, while others have differing tax slabs.
"Firms operating in a zero duty (0% VAT) state will be hit if GST brings with it a new tax levy, which will affect sales of existing inventory," said Suresh Surana, chairman of Mumbai-based professional services firm RSM Astute, that is currently advising clients on measures to gear up for the eventual GST rollout. "GST being a major indirect reform, it will have a significant impact on cash flow, working capital and on profitability."
"There is also the need to change the organisation framework," says Vaibhav Manek, co-founder and internal business advisory partner at global accounting firm KNAV. "Entire systems have to be amended such as purchase orders and invoices and sales orders and invoices as well as the accounting systems also. Most companies are not geared for this."
The proposed GST could also likely impact composite contracts in fabrication projects or in construction works, where the prices have been fixed earlier. Cost assumptions in the contract are based on the tax projections and if these are likely to change, it would affect the project cost also, he said.
Food inflation eases to 18.2%
Business Standard, January 8, 2010, Page 6
BS Reporter / New Delhi
Food inflation eased slightly at 18.22 per cent for the week ended December 26 but there was little respite for the common man, as prices of pulses and cereals were still ruling high.
The food inflation rate, as measured by the Wholesale Price Index (WPI), was 19.85 per cent for the previous week. Food inflation had stood at 10 per cent during the corresponding period in 2008.
Inflation rates for most essential commodities continued to be in double digits. Cereals and pulses registered annual inflation rates of 13.91 per cent and 42.21 per cent, respectively. During the week, food prices fell by 1.01 per cent, primarily due to a week-on-week decline in the prices of pulses (0.24 per cent), vegetables (11.23 per cent) and potatoes (12.01 per cent).
“This is a very slight moderation and will be short-lived. It is primarily due to a decline in the prices of perishables. Shortages in rice and pulses will continue to be a problem. A lot depends on the rabi crop,” said Rupa Rege Nitsure, chief economist, Bank of Baroda.
With the wholesale food inflation staying high, analysts expect the Reserve Bank of India will increase the cash reserve ratio — the amount of funds banks have to park with it — by 25-50 basis points in its upcoming third quarter monetary review on January 29.
However, most maintain that policy rates like repo and reverse repo will remain untouched in the near term.
The annual inflation rate for primary articles, which include food and non-food articles, stood at 14.39 per cent for the week under consideration.
The fuel index rose by 0.4 per cent on higher prices of light diesel oil (5 per cent), naphtha (3 per cent) and furnace oil (2 per cent). The inflation rate for fuel products was 4.85 per cent during the week.
Raise tax sop on home loan interest payment
The Times of India, January 8, 2010, Page 21
NEW DELHI: The Budget 2010-11 should increase the tax exemption limit against the interest payment on home loan and rental income, said real estate compamies on Thursday.
As per the present provisions under the Income-tax Act, an individual gets a tax deduction of up to Rs 1.5 lakh against interest payment on home loan. The industry, in a pre-Budget meeting with FM Pranab Mukherjee, demanded that this limit must be increased to at least Rs 3 lakh to give a fillip to construction activities.
The industry also demanded for increasing the limit of Rs 1 lakh against the principal repayment on home loan to Rs 2 lakh and make this benefit a separate category, instead of current practice of making it a part of Section 80C, which is already overcrowded. The companies argued that this would encourage people to purchase houses.
They also demanded for incentives to promote rental housing. "In view of the housing shortage in the country and the objective 'Shelter for All' and in view of the fact that not all can afford ownership housing, we need to give a big boost to rental housing," the memorandum given by the companies said.
The delegation included Kumar gera of Gera Developer, Pradeep Jain of Parsvnath, Sushil Ansal of Ansal Group and Getambar Anand of ATS, among others.
The industry wanted that income from renting of residential properties be taxed at a flat 10% instead of the present norm of taxing at marginal rate of 30% (if the person falls in maximum slab).
Besides this, they also demanded that only 50% of the rental income should be taxed as against the present provision of 70%. For women and senior citizens, they demanded that entire rental income should be exempted from tax.
Home builders meet FM, want external borrowings allowed
Hindustan Times, January 8, 2010, Page 27
Vivek Sinha, New Delhi
Real estate developers met finance minister Pranab Mukherjee on Thursday to press for incentives in the forthcoming budget to boost housing. Among their key demands was a plea to allow external commercial borrowings (ECBs) for home builders.
Rajeev Talwar, group executive director of the real estate major DLF and Pradeep Jain, president Credai (Confederation of Real Estate Developers Association of India) were among the industry leaders who met the FM.
Among the many demands realtors have asked for continuation of tax holiday under section 80IB(10) for projects approved between April and March 2008 and completed before March 31, 2012.
The industry wants a renewal of Sec 80 IB, which gives tax waivers to homes measuring less than 1,000 square feet in area. The concession was available before 2007.
Credai pressed for developers to access ECBs. At present ECBs are not allowed for housing development. “ECB in housing construction will be supplemental to the funds from banks and financial institutions and in the long term will reduce the cost of finance thereby reducing the price of houses in the country,” said the Credai’s charter of demands.
Thursday, January 7, 2010
Govt divided over continuance of fiscal stimulus package
Govt divided over continuance of fiscal stimulus package
The Hindu Business Line, January 7, 2010, Page 18
Our Bureau, New Delhi
Opinion is divided in the Government over the continuance of the fiscal stimulus beyond March.
Top Finance Ministry officials seem to be in favour of a partial withdrawal while other ministries and the Planning Commission do not want excise cuts to be reversed.
Fresh indication of this divide came today when the Finance Secretary, Mr Ashok Chawla, said at a FICCI meeting that “too much of stimulus when the body is getting healthy is injurious to health”.
This remark has triggered speculation that the industry demand for continuation of fiscal stimulus till September may not find favour with the Government.
Meanwhile, Mr Chawla told reporters on the sidelines of the FICCI meeting that consultations on the new direct taxes code have been completed.
“The architecture will now be finalised by the Revenue Department. Once the Finance Minister and policymakers give the green signal, it will be sent to the law ministry for drafting of the bill,” Mr Chawla said.
Indications are that the bill for the new direct taxes code is unlikely to be introduced in Parliament in the first phase of the upcoming budget session.
The Finance Minister, Mr Pranab Mukherjee, had recently met the Prime Minister, Dr Manmohan Singh, on the issue of new direct taxes code. A presentation was made by the Finance Ministry on the proposals of the new direct taxes code, it is learnt.
Already India Inc has opposed certain proposals in the code like levy of minimum alternate tax on gross assets basis. There is also demand from certain quarters that the exempt-exempt-tax system should not be introduced for taxation of savings.
Too much stimulus could be injurious
Business Standard, January 7, 2010, Page 1
The Finance Ministry on Wednesday hinted that stimulus packages given to the industry might be rolled back, saying too much stimulus could be injurious at a time when the economy was on a revival path.
Too much of stimulus is injurious, says Chawla
Too much of stimulus is injurious, says Chawla
The Times of India, January 7, 2010, Page 23
NEW DELHI: A day after industry representatives met FM Pranab Mukherjee and sought the stimulus in the form of various tax sops to continue for another six months, finance secretary Ashok Chawla said too much of it could be injurious (to the industry) when the economy is on a revival mode.
"Too much of stimulus, when the body is getting healthy, is not good, it can be injurious to health," the finance secretary told reporters. Chawla's remark could mean a gradual withdrawal of many fiscal and monetary concessions the government had given early last year to infuse extra liquidity in the system other than the duty cuts to industry to make them more competitive.
Last year, after the global slowdown hit India, the government had introduced a host of stimulus measures including excise duty cuts by 6%, service tax reduction by 2% and enhanced expenditure in social and infrastructure sectors, besides agriculture loan waiver to the tune of Rs 65,000 crore and implementation of the sixth pay commission recommendations.
The fiscal and monetary sops introduced by both the RBI and the government led to the economy bouncing back with growth in the second quarter of 2009-10 standing at 7.9% against 6.1% in the first quarter and 5.8% each in the preceding two quarters.
The finance secretary also said that the government is through with the consultation process on the proposed direct tax code and a draft would be finalised very soon.
"The process of consultation is almost complete," Chawla said, adding that the revenue department is in the process of preparing a final draft of the proposed tax code that would replace the existing Income Tax Act of 1961.
After the draft is finalised, the tax code would be sent to the law ministry for vetting after which it will come up before the inter-ministerial committee. The direct tax code is proposed to be implemented from 2011-12.
Ministries at odds over stimulus exit
Ministries at odds over stimulus exit
The Economic Times, January 7, 2010, Page 1
G Ganapathy Subramaniam, ET Now
Commerce and industry minister Anand Sharma has urged against an immediate rollback of last year’s stimulus measures, wading into a debate on the
timing of the stimulus exit that has pitted ministries, policymakers and industry on different sides.
The finance ministry, trying to manage the highest fiscal deficit in 16 years and galloping food price inflation, is keen to do away with the stimulus measures on the grounds that these have helped shepherd India’s economy safely out of the worst global economic crisis since the Great Depression.
Finance secretary Ashok Chawla, the senior-most bureaucrat in the finance ministry, on Wednesday said continuing stimulus measures wasn’t good for the economy, arguing that “too much of stimulus can be injurious to health” and clearly hinting that a rollback of the stimulus measures may be on the cards. However, Mr Sharma urged caution. “We have to be cautious in withdrawing the stimulus measures. The recovery is stimulus-led and stimulus-fed. Without stimulus measures, the recession could have turned into a depression,” he told ET NOW in an interview.
The stimulus measures — a mixture of tax cuts, increased expenditure, easy credit and interest rate cuts all totalling more than 12% of GDP — were announced in three phases between September 2008 and April 2009. Around this period, economic growth slowed to nearly 6% levels after averaging more than 9% in the preceding three years. The economy has since recovered, notching 7.9% in the quarter to end-September.
The commerce minister said the improvement in leading economic indicators in the run-up to the Budget next month-end “should not lead to measures that will hurt in the long run”, pitching his views closer to that of industry that wants the stimulus measures to be kept in place for at least another six months. “Even if we have done well, we cannot afford to turn complacent,” he said.
Easy availability of credit and lower interest rates should stay, Mr Sharma emphasised, adding that Indian industry was always at a disadvantage due to higher cost of capital, and the improved liquidity in the wake of slowdown had only partially neutralised the handicap.
He, however, acknowledged that keeping fiscal deficit under control was a major challenge, and said he trusted finance minister Pranab Mukherjee to come up with fitting measures. “I know the FM has his concerns. His work is difficult.”
Mr Sharma said India needed to move onto a higher growth trajectory to lift millions of people out of poverty, and said for this to happen the country had to become a strong manufacturing hub like China. The government was planning to set up dedicated investment and manufacturing zones, much like special economic zones (SEZs), and arm them with incentive packages to boost the share of manufacturing in the country’s GDP to 25% from around 16% now, Mr Sharma said.
While SEZs will play a key role in boosting exports, the manufacturing zones will seek to shape India into a strong manufacturing hub like China. Appointed commerce minister in the UPA government’s second stint, Mr Sharma has presided over a recovery in India’s export performance. Exports rose 18.2% in November, the first rise after 13 months of decline.
Mr Sharma said while exports were on the recovery path, a ‘full and sustained’ recovery would happen only when demand picks up across the US, Europe and Japan.
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