30 Sep 2017

Govt wants early warning system on shell companies

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Qualified accounts can be flagged on the ministry’s portal, thereby, helping regulators to keep a check on suspicious entities

The ministry of corporate affairs (MCA) says work has begun for an “early warning system” regarding shell companies.

 

The term is used to refer to a company without active business operations or much of assets. This by itself isn’t illegitimate but they could be used as a manoeuvre for financial operations of a suspect or illegitimate nature.

 

Currently, there is no way to check shell companies systemically, an official said. Chartered accountants (CAs) do come out with qualified accounts of such companies but these come in a random way on the ministry’s MCA21 portal. Qualified accounts refer to bits of information about which CAs have doubts or disagreement with the audited entity’s management.

 

After the hoped-for early warning system comes, qualified accounts would be flagged on the ministry’s portal, helping it and other regulators to check on such entities. “We are yet to work out the nitty gritty of this system but are on the job,” another official said.

graphHe said this would do away with the current system of random inspections to identify such companies. The portal will have filings by CAs in such a way that regulators will be alerted, he said.

 

Earlier, minister of state for corporate affairs P P Chaudhary had said the government would try to use the information technology tool of artificial intelligence in this regard.

 

CAs told Business Standard that an early warning system by itself wouldn’t change things by much. There should also be stringent norms to make auditors more independent. One of them said it is a company’s promoters who appoint the auditor, which means the latter does not retain the independence to openly report facts. So, a CA’s appointment would need to move away from promoters.

 

The ministry had recently issued rules to limit the number of subsidiaries a company may have — no more than two layers. This will apply prospectively but existing companies have to disclose details of their entire list of subsidiaries to the registrar of companies within 150 days. Banks and insurance companies are excluded from this rule.

 

With no limit on the number of subsidiaries, regulators found it difficult to track illicit transactions.

 

Source: Business Standard

23 Sep 2017

India growing pretty robustly: World Bank President Jim Kim

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Jim Kim said Japan, Europe and the US along with India were growing and there was a levelling-out in developing countries.

India has been growing “pretty robustly”, World Bank President Jim Yong Kim has said as he predicted a strong global growth this year.

Speaking at the Bloomberg Global Business Forum meeting here on Wednesday, Kim also called for more cooperation among the multilateral system, private sector and the governments to take advantage of the current win-win situation.

“That dormant capital will earn a higher return, where developing countries will have access to much more capital for the infrastructure needs, even for investing in health and education, investing in resilience to climate change and other factors,” Kim said.

He said Japan, Europe and the US along with India were growing and there was a levelling-out in developing countries.

“A country like India is growing, has been growing pretty robustly. We think, Japan is growing. Europe is growing in a much more healthy way. The United States continues to grow. There is a levelling-out in developing countries,” he said, adding that the growth will be more robust this year.

In June, the World Bank predicted a 7.2 per cent growth rate for India this year against 6.8 per cent growth in 2016. India remains the fastest growing major economy in the world, the World Bank officials had said.

“It used to be that commodity importers were doing much better than commodity exporters. But that’s levelling out. So the growth is relatively more evenly distributed,” Kim said.

He said in terms of indebtedness, the bank was watching very carefully the debt-to-GDP ratios of every single country.

“In Africa, the debt-to-GDP ratios are still very manageable…We would not be moving toward providing more financing for countries if we thought there was a real problem with over indebtedness in the countries. Because we follow this very closely, along with the IMF,” he said.

“We think that there are tremendous opportunities for investment. But sometimes, purely based on perception, investors in sovereign wealth funds – I’ve heard them say, Africa is risky. Right, as if Africa was a single country.

Africa’s not a single country and the risk profiles from country to country have enormous differences,” he said.

Source: Economic Times

 

23 Sep 2017

Only Rs 12,000-cr Input Credit claims valid

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GST regime allows tax credit on stock purchased during the previous tax regime

The government on Friday said only Rs 12,000 crore of the Rs 65,000 crore of input tax credit claimed by assessees for the pre-GST stocks were valid.

The governments, both the Centre and states, had got Rs 95,000 crore of revenues from the goods and services tax (GST) for July, the first month of the indirect taxation system. But after claims of Rs 65,000 crore were made for refunds of taxes paid on stocks lying with businesses as of June 30, the government was startled, as that would  have meant just Rs 30,000 crore of revenues from GST, which would be shared between the Centre and the states. The finance ministry said Rs 95,000 crore was the amount actually paid in cash, other than availing credit.


The Press Trust of India reported the government has estimated valid transitional credit claims of taxpayers in July were just Rs 12,000 crore and not Rs 65,000 crore, as previously claimed. This would give the government a short in the arm in its efforts to mop-up additional resources to perk up a subdued economy.

 

Only Rs 12,000-cr credit claims valid

The GST regime allows tax credit on stock purchased during the previous tax regime. This facility is available only up to six months from the date of the GST roll-out. Even these claims could be adjusted in future months, a statement by the finance ministry suggested.

An expert explained that some of the credit available in earlier taxes would be blocked in the new regime. For instance, he said, the credit for taxes paid on purchasing vehicles were not available for businesses under the new tax unless it was a dealership or business of carrying passengers. Also, credits claimed might be under litigation and, therefore, it might not be available to the assessee to carry forward or for utilisation.

Earlier in the day, the finance ministry had issued a statement to allay concerns about high transitional credit claims, saying the Centre’s revenue kitty would not go down because of these claims. It said claims worth Rs 65,000 crore does not mean that businesses would have used all of this for payment of their output tax liability for July. In other words, the credit, which now stands reduced to Rs 12,000 crore could be utilised for future tax liability.

On how the government would stagger the adjustment, Abhishek Rastogi of Khaitan & Co cited the example of banking services. In the earlier regime, banks had to pay a centralised service tax. Under GST, they will pay state-wise tax as well. So adjusting credit for pre-GST stocks may take some time as tax liability in one centre, which used to pay earlier taxes, might not be as huge this time.

The ministry also said Rs 65,000-crore transition credit claimed was “not incredibly high” as Rs 1.27 lakh crore of credit of central excise and service tax was lying as closing balance as of June 30, 2017.

The statement said some assessees would have committed a mistake in filing the form TRAN-1 and hence, the government will allow facility of revision of TRAN-1 by the middle of October.

The GST Council has already extended by a month the date for filing TRAN-1 form till October 31.

Archit Gupta, CEO of ClearTax said while the move to extend the deadline is a good step, there would be confusion to reconcile the credit available in the old regime with the one in the GST system.

Source: Business Standard

20 Sep 2017

FDI likely to rise further after GST: Moody’s

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FDI in India grew by 18% during 2016 to touch $46 billion, data released by the Department of Industrial Policy and Promotion showed.

India is likely see increased foreign direct investment (FDI) inflows on the back of reforms such as introduction of the goods and services tax and the bankruptcy code, international ratings agency Moody’s said in a report on Monday.

“Combined with reforms such as the introduction of a goods and services tax, which lowers the cost and complexity of doing business, and a simplified and clarified bankruptcy code, FDI is likely to rise further,” the agency said in its report on how structural reforms by Asia Pacific sovereigns could become more effective from stronger global demand.

In India, Moody’s said, the government has raised ceilings for authorised FDI in a number of sectors. “FDI has already increased substantially, albeit from a low base,” the report said.FDI in India grew by 18% during 2016 to touch $46 billion, data released by the Department of Industrial Policy and Promotion showed.

The Narendra Modi government has liberalised FDI framework for a number of sectors including insurance, defence and civil aviation and also taken steps towards the ease of doing business. Moody’s said the positive economic impact of India and Indonesia’s measures to attract higher levels of FDI, combined with steps to improve business conditions, are likely to be more apparent in a stronger global macroeconomic environment. The agency has maintained India’s sovereign rating at Baa3 positive.

“India and Indonesia’s governments have both implemented reforms over the past few years to improve the overall business climate and, more specifically, to attract FDI,” Moody’s said, adding that a robust global environment is likely to amplify the positive impact of the reforms on the two countries’ attractiveness to foreign investors.

Moody’s Investors Service said the strengthening in global demand since the end of last year has buoyed Asia Pacific’s trade-reliant economies, but added that faster export growth has yet to feed into a sustainable acceleration in output growth.

19 Sep 2017

Jurisdiction-free I-T assessment on the cards

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The identities of the taxpayer and his assessing officer will be hidden in a bid to check corruption and harassment assessees face at the hands of over-zealous officers.

To check corruption and harassment, the tax department will soon launch a pilot of “jurisdiction-free assessment” where a tax officer will not get to know identity of the assessee as allotment of cases will be done randomly by computers rather than on the basis of area.

The success of the pilot, to be first carried out in New Delhi and Mumbai, will determine if the plan has to be expanded all over the country, a senior revenue department official said.

The country is divided into 18 tax zones. Taxpayers are assessed by the officers of the region they are based in.

Under the new system, the assessment zones will be demolished and a special computer software will allocate a taxpayer to any officer anywhere in the country, he said.

The identities of the taxpayer and his assessing officer will be hidden in a bid to check corruption and harassment assessees face at the hands of over-zealous officers.

The tax department is working on a major reform initiative to make compliance taxpayer friendly and a 13- member committee of tax officers has been formed to look into implementation issues, the official said.

But before the country-wide launch, the pilot is being run to spot implementation issues.

“After you initiate jurisdiction-free assessment, a taxpayer might say he wants to meet the tax officer face to face and explain his case. What do we do in that case? Can we deny the taxpayer an option to meet his assessment officer (AO)? Say, we allow them to have video conferencing, then we will have to set up the facility in tax offices. These are issues we need to address,” he explained.

Among draft recommendations of a technical committee submitted to the CBDT, the apex policy-making body on income tax matters, the tax department wants to move to the jurisdiction-free I-T assessment where the taxpayer will not have to meet his assessing officer face to face.

The official also said the proposals were broadly reflected in the Prime Minister’s speech in Rajaswa Gyan Sangam earlier this month when he had said the relation between the tax department and an assessee should be that of an examiner and an examinee where either party does not know each other.

Modi, the official said, had also called for redrafting of the archaic income tax laws so that these become simpler. The humongous Income Tax Act has been in place since 1961 and the UPA government had proposed a Direct Tax Code to replace the Act.

However, since the government changed in 2014, the DTC could not be taken up.

19 Sep 2017

Financials hit a new high in India

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Lending and borrowing money is now India’s fastest-growing segment, and the successful industry and lenders are the latest darlings of equity investors. The share of banks and non-banking finance companies (NBFCs) in the market capitalisation (market cap, or m-cap) of all listed companies is now at an all-time high, as manufacturing companies and non-financial services such as information technology (IT) battle demand slowdown.

Banks and NBFCs, including insurance companies, now account for 22.3 per cent of the combined m-cap — the highest in at least two decades, and up from 17.2 per cent in March 2014 and 17.3 per cent five-and-a-half years ago in March 2012.

In contrast, the m-cap share of manufacturing companies is now down to a 10-year low of 54 per cent, against 55 per cent at the end of FY14 and around 57 per cent five years ago.

The biggest decline has, however, been recorded by companies in the non-financial services sector, whose largest component is IT exporters such as Tata Consultancy Services, Infosys, and Wipro. Non-financial services sector companies’ share in m-cap has declined to an all-time low of 23.7 per cent, against 28 per cent three years ago.

The combined m-cap of banks and NBFCs is up 145 per cent in the last three years to ~30.4 lakh crore now, growing at an annualised rate of 29 per cent since March 2014. Public sector banks have not participated in this boom as they lend largely to businesses which are now shrinking due to a virtual freeze on fresh investment by the corporate sector.

In the same period, manufacturers’ combined m-cap is up 85 per cent to ~73.6 lakh crore, growing at an annualised rate of 19.2 per cent during the period.

Non-financial services have been the laggards with the sector, with m-cap up 61 per cent during the period to ~32.4 lakh crore now, growing at an annualised rate of 14.6 per cent since March 2014.

The analysis is based on the year end m-cap and revenues of actively traded companies for every year since 1994-95. This means that the sample gets bigger every year as more companies get listed. For example in FY17, the sample had 3,552 companies, while the FY95 numbers were based on a sample of 1,551 companies. However, the absolute numbers are not important, as the analysis is based on a percentage of total m-cap.

It may not show in the overall numbers, but the boom in retail finance has had a knock-on effect on related segments in manufacturing and services. For example, most of the growth is now occurring in segments such as consumer durables, including passenger cars and two wheelers, and organised retail, where purchases are loan financed.

Experts attribute this to the growing financialisation of the Indian economy and near stagnation in industrial growth and service exports. “Private lenders and retail NBFCs continue to grow, even as the rest of the economy is on the verge of stagnation. This has made financial stocks the darlings of investors,” says G Chokkalingam, founder and MD, Equinomics Research & Advisory.

It shows in the revenue growth of listed companies vehicles or homes. across various sectors. The In the last three years, personal core revenues (or interest loans or household debt income) of banks and non-bank has grown at a CAGR of 18 per lenders grew at a compound cent, against 10.2 per cent annual growth rate compounded growth in disposable (CAGR) of 7.3 per cent in the income (at current last three years, making the prices) net of taxes during the sector one of the fastest-growing period, according to the Reserve Bank of India data.

In the same period, the all, the total household debt combined revenues of manufacturers, is up 65 per cent cumulatively including utilities in the last three years, against and construction firms, grew 35 per cent rise in disposable at a CAGR of 2.8 per cent, income during the period. while net sales of companies This has translated into a in non-financial services contracted boom in retail lending and a at an annualised rate sharp rise in valuation of of 4.8 per cent during the retail lenders such as private period. sector banks and NBFCs,

Lenders have also gained including Housing from a growing propensity of Development Finance Indians to borrow for purchasing Corporation, consumer Bajaj Finance, goods, Indiabulls Housing, Equitas Holdings, Bharat Financial Individuals, in turn, are taking Inclusion, and PNB Housing. on more risks and leveraging.

“Financials are now the their income to keep up only growth industry in the consumption despite a slowdown country. This has led to a in their income growth bubble-like valuation in the in line with the slowdown in retail lending space, especially gross domestic product NBFCs,” says growth,” says Dhananjay Sinha.

He expects the trend to robust growth in industry last for a while, given the and exports. “Consumers’ growing reliance on private income growth is dependent consumption in the economy on the performance of the despite poor growth in jobs farm, industrial and service and income. sector, especially software.

For how long can encouraging consumption people continue to borrow through fiscal spending in a and keep up their consumption bid to push up economic if income growth growth in the face of a slowdown remains depressed?” asks in corporate investment Chokkalingam.

Source: Business Standard