NEW DELHI: Finance minister Arun Jaitley on Friday iterated the Modi government’s promise to keep tax rates low and ruled out any new retrospective taxes when he replied to the debate on the Finance Bill, 2014, in the Lok Sabha, which passed it later.
Stating that the government will not interfere with the judicial proceedings regarding tax notices issued with respect to indirect transfer of Indian assets under the 2012 retrospective changes to the Income Tax Act, Jaitley removed an irritant by making the higher long-term capital gains tax rate on debt mutual funds proposed in his Budget strictly prospective.
The minister had in his maiden Budget announced a new committee under the Central Board of Direct Taxes to look into each fresh case that may be found by field-level tax officers on taxation of indirect transfers to decide whether it needed to be pursued. Showing his displeasure with retrospective taxes introduced by the previous UPA regime and intent to relent on this to the extent legally possible, the finance minister had said in the Rajya Sabha on Thursday that this was a difficult knot to untie.
The minister, who said he did not have time to review the position on the dreaded General Anti-Avoidance Rules (GAAR) during the Budget-making exercise, said he would apply his mind on it now. GAAR provisions are feared by investors given the additional powers it would give the taxman to influence their tax planning by lifting the corporate veil.
Under industry pressure, the UPA had deferred GAAR’s implementation to April 1, 2015.
The Rajya Sabha will consider the Finance Bill for passage on Wednesday.
As per the amended Finance Bill passed in the Lower House, capital gains on debt mutual fund investments held for a year and redeemed between April 1 and July 10 this fiscal would be taxed only at the earlier long-term capital gains tax rate of 10%.
Jaitley had originally proposed to increase the holding requirement for long-term assets to 36 months and tax them at 20% from April 1 onwards, which unnerved many investors.
Mutual fund industry players described the relief as partial as the revised rate will be applicable for investments redeemed after July 10.
As per the amended Bill, only debt mutual fund investments redeemed after July 10 would be denied the option to pay tax at a lower rate of 10% if indexation benefit (accounting for inflation in the capital gain made) is not availed of. “The finance ministry should now work with Sebi to make amendments to fixed maturity plans (FMP) regulations and allow these to become open-ended, else investors in FMP will unfairly be taxed on short-term basis though when they invested the rules were different,” said Sudhir Kapadia, national tax leader, EY.
In the amendments to the Finance Bill, Jaitley also sought to reduce the impact of his Budget proposal of making it compulsory for businesses to deposit 7.5% of excise or customs duty or the penalty demanded in assessment orders if they are to appeal to with commissioner (appeals). In the case of appeals at tribunals, the deposit requirement was 10%. As per the changes proposed to Central Excise Act and the Customs Act, businesses would be paid interest at the rate of 5-36% a year from the date of deposit if it is to be returned.
Amendments to the Finance Bill passed on Friday also provided for appointing a former Supreme Court judge as chairperson for the Authority for Advance Ruling that would give advance ruling on direct and indirect tax liabilities of domestic companies. So far, the facility was available to non-residents and public sector units. “High taxes drive consumers away. Consumers buy products, they don’t buy taxes,” said the minister, defending his decision to extend the excise duty cuts on capital goods and automobile sectors. Asserting that taxes forgone weren’t taxes lost, Jaitley said, “Ours is not a high-tax government.”
Jaitley also said the higher personal income tax exemption limit, investment limit and higher deduction on housing loan repayments announced will help in boosting savings. “Certainty in tax law reduces compliance costs and makes the tax regime investment-friendly. However, legislative actions should be equally supported by administrative actions,” said SP Singh, senior director, Deloitte Haskins & Sells.
Jaitley also promised to take discussions on the proposed goods and services tax (GST) forward. “We will hope to have the law ready for GST by the end of this year,” the minister said. Recovering unaccounted wealth kept abroad by Indians is also a priority for the government.
(Source: The Financial Express, July 26, 2014)
NEW MFI BILL AFTER CONSULTING STATES: JAITLEY
NEW DELHI: The government will come up with a new Bill to regulate the micro-finance institutions after consultation with states, finance minister Arun Jaitley told Lok Sabha on Friday.
“We have started the consultation process with everyone, including state governments, to prepare a new Bill,” he said.
The Micro Finance Institutions Development and Regulation Bill, 2012, was introduced in Lok Sabha on May 22, 2012, and was referred to the Standing Committee, which submitted its final report on February 17, 2014. The committee had urged the government to have wider consultations with state governments and stakeholders and bring forth a fresh legislation before Parliament, he said. The Bill lapsed due to the dissolution of Lok Sabha and shall have to be introduced fresh, he added.
Jaitley said a large number of MFIs are self-help groups — around 46% — and many of them are run by women.
(Source: The Financial Express, July 26, 2014)
PHARMA FIRMS GO TO HC AGAINST USE OF SPECIAL POWER FOR PRICE CUTS
NEW DELHI: Leading drug makers have approached the high court in Mumbai, raising concerns against the latest price cuts ordered by the National Pharmaceutical Pricing Authority (NPPA) by using provisions provided for “extraordinary circumstances”.
Indian Pharmaceutical Alliance (IPA), an industry association representing leading domestic companies, including Sun Pharma, Cadila Healthcare, Lupin and Ranbaxy, have filed a petition at the high court in Mumbai. They’ve challenged the recent price reduction of diabetes and cardiovascular medicines, it is learnt.
According to a source, the matter is expected to come for a hearing on Wednesday. When asked, IPA secretary general DG Shah said, “We are exploring all possible actions. At this point in time, we cannot give further information.”
NPPA Chairman Injeti Srinivas confirmed the move. “We are aware of the development. They are within their right to approach the court. We will file our response in the court,” he said.
The companies have also written to the department of pharmaceuticals’ secretary, Aradhana Johri, raising concerns on the latest move by NPPA and seeking the government’s intervention. “We do not find that such extraordinary circumstances have risen since the promulgation of the DPCO 2013 to warrant their use,” IPA had said in its letter.
Top representatives from other pharma industry organisations, such as Organisation of Pharmaceutical Producers of India, which represents multinational drug makers in the country, have also met senior officials in the department. The industry is also considering a representation to the Prime Minister’s Office.
Earlier this month, the Authority ordered cuts in the prices of around 50 formulations in the two segments of cardiovascular and anti-diabetes medicines by up to 35 per cent, under Paragraph 19 of the Drugs Price Control Order, 2013. The provision allows NPPA to reduce prices of medicines in an “extraordinary” situation, in the public interest. Similar price cuts are expected in other therapeutic categories, in anti-cancer drugs, anti-retrovirals, vaccines and medicines used in treatment of asthma, tuberculosis and malaria.
According to an industry source, IPA has objected that the current circumstances do not qualify as “extraordinary”. Beside, the regulator has acted out of the policy purview, to bring more drugs under price control. Under the National Pharmaceutical Pricing Policy, 348 essential medicines come under direct price control, where the government has the right to cap their prices based on the average price of all medicines in a particular therapeutic segment with a minimum of one per cent market share.
However, NPPA has identified eight categories where it feels there is a huge “inter-brand” price difference. Apart from anti-diabetic and cardiac drugs, NPPA’s list has medicines used in treatment of asthma, tuberculosis, malaria, oncology, anti-retrovirals and vaccines. It has decided that as consumers cannot make an informed choice and have to compulsorily go by a doctor’s prescription, it is imperative to bring down the inter-brand price difference, so that companies cannot charge patients unduly to promote their products with doctors.
The regulator, therefore, decided to fix the price of any medicine in these categories if it exceeded 25 per cent of the simple average price in that category. This has increased the span of price control from around 13 per cent to 20 per cent of the Rs 76,000-crore domestic pharma market, creating pressure on the revenue of leading drug makers, India-based and multinational.
Companies have also written to the Department of Pharmaceutical (DoP) secretary Aradhana Johri raising concerns on the latest move by NPPA and seeking government’s intervention to safeguard industry’s interest.
“We do not find that such extraordinary circumstances have risen since the promulgation of the DPCO 2013 to warrant their use,” IPA had said in its letter addressed to Johri earlier in July.
Top representatives from other pharma industry organisations such as Organisation of Pharmaceutical Producers of India, which represents multinational drug makers in the country, have also met senior officials in the department.
The industry is also considering to make a representation to the Prime Minister’s Office on the matter.
(Source: Business Standard, July 26, 2014)
PROFITABILITY OF PUBLIC SECTOR BANKS UNDER STRESS
KOLKATA/NEW DELHI/CHENNAI: State-run banks’ profitability in the first three months of this financial year have remained under stress. A rise in bad loans, higher provisioning and loss on sale of investments have dragged down their earnings growth. Four public sector banks – Allahabad Bank, Indian Bank, Punjab National Bank (PNB) and UCO Bank – announced their first quarter earnings on Friday. Of these, two reported year-on-year decline in their profit after tax; the other two saw moderate growth in net profit.
PNB said its net profit for the quarter ended June increased by 10 per cent from a year earlier to Rs 1,405 crore. However, there was a sharp rise in non-performing assets (NPAs). The gross bad loan ratio deteriorated to 5.48 per cent from 4.84 per cent a year earlier, while its net NPA ratio was up four basis points to 3.02 per cent at the end of the quarter.
“NPAs continue to engage our attention in the current environment. An improvement in economic situation will probably help us better our asset quality. We are hopeful that our next NPA number will be better,” said K R Kamath, chairman and managing director, in his post-earnings comments.
Kolkata-based UCO Bank saw its April-June net profit rise only two per cent over a year, to Rs 521 crore. While the lender was able to improve its asset quality, lower treasury income and higher tax provisions limited its earnings growth.
“We have been conserving capital, acquiring assets cautiously and focusing on the retail banking business. We have been improving our asset quality for the past few quarters. But a drop in profit on sale of investments impacted our operating profit. Also, the bank coming out of the purview of MAT (Minimum Alternate Tax) and having to pay Rs 163 crore income tax in the quarter impacted our net profit,” said Arun Kaul, chairman and managing director.
Allahabad Bank’s net profit fell 73 per cent from a year earlier to Rs 113 crore. “One large account, of Rs 400 crore, slipped into NPA during the quarter. Also, we had to make Rs 460 crore provisions against one account, which is a standard asset for us but has become an NPA for other consortium lenders. These factors resulted in a decline in our net profit,” Rakesh Sethi, chairman and managing director, told Business Standard.
Chennai-based Indian Bank saw its net profit fall 35 per cent to Rs 207 crore during the quarter. T M Bhasin, chairman and managing director, said in the corresponding period of previous year there was an ‘exceptional gain’ of Rs 314 crore, reduced to 36 crore in the first three months of this financial year. “In the next quarter, as the market conditions improve, we would be able to perform better on this count,” he said.
(Source: Business Standard, July 26, 2014)
LOWER BENCHMARK YIELD SIGNALS FALL IN INTEREST RATE
MUMBAI: With the new benchmark yield on the 10-year government securities coming in at 8.40% per annum, compared to the prevailing yield on the existing 10-year at 8.69%, fund managers and bond dealers expect the rate of interest to come down in the next few months. Since several lenders benchmark their lending rates to the 10-year gilt yield, changes in this benchmark rate leads to tweaking in lending rates in the market. Combined with the recent fall in the rate of inflation, the government’s proactive measures to manage the supply side of the economy that impacts the prices of food products are also seen helping to bring down the rate of interest, they said.
“There are implicit signals that the rate of interest is on a downward spiral,” said a dealer with a domestic bond house. “Last November when a new 10-year paper was introduced, the yield was 8.83%, while the new one today (Friday) came in at 8.40%. In ‘the when issued segment’ it was trading at yields between 8.42% and 8.36%,” the bond dealer said.
“The when issued segment” of the market is a section where bonds are traded ahead of their formal issue and the yields there are taken as an indication for the cut-off yield during the actual auction of the paper. The government had announced auction of the new 10-year gilt on Monday and the paper was being traded in “the when issued market” since then with the yield in the range of 8.36%-8.42% till the auction by the RBI on Friday afternoon.
According to Nandkumar Surti, MD & CEO, JP Morgan Mutual Fund, with the government taking proactive steps to manage the supply side in the food products chain, there is a lot of confidence in the market about a lower rate of interest. “The market is bullish now and I am expecting the rate of interest to fall by 100 basis points (= 1 percentage point) to 150 basis points in the next 18-24 months,” Suti said. The recent government decision to shift the extra FII quota for government debt for sovereign funds that was unutilized to offshore quota (non-sovereign funds) is also helping the gilt yields to come down, market players said.
(Source: The Times of India, July 26, 2014)
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