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Monday,
February 10, 2003, Chandigarh, India  
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Budget-2003:
making it less taxing FIIs net
buyers in equities UBI turns
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PAN
Investing
for attractive dividend returns
Law
permits variation in weight
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Budget-2003: making it less taxing Besides better compliance, evasion ceases to be attractive if the taxation is moderate the fact has been proved beyond any doubt. The burden of deductions, concessions and subsidies extended to various sectors has to be shared by a limited number of assessees, making the taxation irrationally high and that is the major obstacle in the process of moderation. In its endeavour to plug the loopholes in the taxation structure and to make the taxation more broad based and moderate too, the task force led by Dr Vijay Kelkar, Adviser to the Finance Minister has suggested certain reforms in the existing taxation structure. Many objections, even within the ruling BJP faction, were raised to the report earlier submitted by Dr Kelkar. Now the task force has resubmitted its report with certain amendments to the earlier one. A few of the suggestions of the committee includes taxing the agriculture sector withdrawing existing concessions to the housing sector & small savings, scraping of standard deduction etc. Taxing the agriculture income on the recommendation of the task force may prove to be an uphill task for the government against the tremendous political opposition, however, the Finance Minister may plug a major loophole by considering taxing the agriculture income of the non-agriculturist assessees. A suggestion of further categorisation of agriculture income under different criterions such as land owned, farm machinery and implements used etc. for taxing purpose may also be considered. Even if, about 10 per cent of the agriculturists, mainly comprising of upper cream/ layer, are brought into the tax net in the first phase, it shall be a good beginning. Standard deduction: Dr Kelkar’s recommendation of scraping the standard deduction on the salaried income to cover the revenue loss under the suggested taxation structure has logic as while availing all perks like medical aid, house rent and TA/DA at the government expense the salaried class must be treated at par with other assessees. Lower to middle income group however gets automatically exempted when the tax slab starts from the income of Rupees one lakh onwards. Taxing savings: Proposal of withdrawing of tax benefits on income from small savings such as bank interests, NSS and LIC must be reviewed as the step may prove to be counterproductive as much of the money so saved is utilised in the development works of the country. Moreover in most of the cases the meager interest earned by the depositors on their savings is the only source of income for the livelihood of senior citizens. Tax benefits to housing sector: So far as the withdrawing of tax benefits to the housing sector is concerned the proposal needs a fresh thought as the cumulative benefit to the housing sector will become clearer if we compare the state of affairs with other countries. With standard share of employment for housing at 3.5 per cent, it is just 1 per cent in India and the construction growth rare of the country is just 4.2 per cent as compared to 16 per cent in China and 9-10 per cent in Thailand. McKinsey & Co has estimated that housing as well as the retail real estate cost in India could fall by 40 per cent provided that suggested reforms are implemented. Realising that one of the principal reasons for long stretched recessionary market trend, sagging economy and stagnated growth rate of the country at around 5 per cent, is the severe infrastructural bottleneck. The Planning Commission of India while aiming at strengthening the infrastructure sector has fixed the target of annual growth rate of the country at 8 per cent of the GDP during the Tenth Five Year Plan. Creating 10 millions of job opportunities per annum, besides stepping up of FDI by 50 per cent, i.e., from present $ 5 billion annually to $ 7.5 billion annually and disinvestments of Rs 78,000 crore are the other targets fixed during the plan period. A status quo to the existing tax benefits to the housing sector pertinently has to be maintained, in an order to meet the objectives of providing shelter to all, target of creating 10 million job opportunities per annum and for attracting the foreign investments. Not only this, otherwise too, the change in government’s policies every other day, that too, rolling back on the benefits offered, puts a big question mark on the credibility of the government as the public adopt the policies floated by the government or other bodies sponsored by the government on its face value. Fate of those having raised long term housing loans, taking the declared benefits in to consideration, can be well assessed. How the government can go back on its policies having retrospective financial implications on individual plans? Follow up on policies: Every year union budget is presented with certain changes keeping overall development of the country in mind. Reforming policies contemplated at the Centre Government level have usually proved to be a non-starter for lack of political will and determination at the implementation level. State governments, having diversified political interests, have preferred to shelve these plans even against the most vital national interest. None of the states came forward to implement much needed reforms to the real estate sector such as rationalisation of stamp duty regimes, reformed rent laws, repealing of urban land ceiling acts, revision of bylaws to streamline the approval process for construction of buildings/development of sites-for that revision of municipal laws in line with model legislation prepared by the Ministry Urban Development and poverty alleviation and simplification of legal and procedural framework for change of land use from agriculture to non-agriculture purposes programmed in the last budget by the Union Government. Even the UDIF (urban development incentive fund) with an initial installment of Rs 500 crore earmarked to
incentives those states coming forward to implement these reforms has failed to lure the states. Now the next Union Budget round the corner, the Union Government must ensure, with a regular and effective follow up, that the policies formulated at the centre are implemented in the letter and sprit at the state’s level as only then the country can have the real outcome of the policies. National interest reigning supreme, center’s writ should large for the effective implementation of the policies envisaged by it at various ministerial level even if the specific subject matter is listed in the state or concurrent list. Necessary amendments in the constitution for this purpose, if needed, may be initiated as an effective measure.
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FIIs net buyers in equities
Mumbai, February 9 The mutual funds (MFs) were net buyers in equities at Rs 21.43 crore while netting outflows at Rs 118.4 crore in the debt market in the first trading week of February, according to the data available with SEBI.
PTI
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Inflation zooms
New Delhi, February 9 |
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UBI turns around Chandigarh, February 9 Mr Madhukar said the bank has shown a marked improvement in reduction of NPA, increase in advances, return on equity and capital adequacy ratio. Besides planning to add further to its 1300 branches spread by opening more outlets for business development, the bank has been contemplating to increase its business in Chandigarh, Punjab and Haryana. He said the facility of ‘anywhere anytime’ banking will be available in 10 branches and four ATMs at Calcutta and Delhi, during the initial phase. Out of 160 hi-tech branches, Ludhiana and Chandigarh will be interconnected soon. The bank has reduced its losses from Rs 1500 crore to Rs 1200 crore as on 31.3.2002 and expect to reduce further to Rs 900 crore by 31.3.2003. The bank has recently gone in for a Credit-card tie-up with State Bank of India. This will facilitate its consumers to use SBI network. Mr A.S. Bhattacharya, DGM, high lighted the performance of the bank.
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by R. N. Lakhotia PAN I am a government retiree residing in a small village. Please guide me for the problems under for filling the I.T. return for F. Year 2002-2003. 1. I have quoted the last two digits of PAN, by mistake as 41 instead of 14 in my I.T. returns for 1998-99 and 1999-2000 F.Years. Is there any remedy to get it corrected. 2. My annual taxable income due to receipt of Pension arrears Rs 65,000 from February 1996 to March 2003 is likely to be Rs 1,76,000. Please advise some suitable investments with 100 per cent deduction so that the income may come to less than Rs 1,50,000. 3. On maturity of a Mutual Fund-Tax Shield (now Tata Shield dated March 3, 1993, the Principal Rs 10,000 alongwith interest is to be added to the Pension income or to the income from other sources. —H.L. Khurana, Ludhiana Ans: For mistake in wrong mentioning of your PAN, you may please write a letter to your Income-tax Officer giving therein the correct PAN for receiving 100 per cent tax deduction, you may invest in pension plan to avail tax deduction at the rate of 100 per cent upto Rs 10,000. You may also contribute for donations to the Prime Minister’s Relief Fund, etc. to enjoy 100 per cent deduction. If you invest in mediclaim policy, then also you get tax deduction. The amount of maturity of the mutual fund will be added to income from other sources.
Senior citizen Q: My date of birth is 1.4.1937. Some tax men whom I consulted advised me that, since my date of birth is 1st April, I would complete 65 years of age on 1st April 2002 i.e. after close of the financial year 2001-2002. However, as per your answer to a question in The Tribune dated 19.8.2002. I would have completed 65 years of age at the close of the financial year 2001-2002 and could have claimed for that year the requisite tax rebate of Rs 15,000 U/s 88-B of I.T. Act. May I request for a re-confirmation of your valued advice by quoting specific provisions of the I.T. Act or Rules made thereunder to help me claim the requisite tax rebate by filing a revised I.T. Return for financial year 2001-02. —Mohinder Sodhi, Chandigarh Ans: As you have completed 65 years of age at the close of the financial year, you would be eligible for tax rebate for senior citizens.
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by J.C. Anand Investing for attractive dividend returns The stock market continues to be depressed as the dark clouds of possible US attack on Iraq are spreading. The closeness of the coming budget in the third week of this month is not having any impact on the market. Nonetheless, it is time that long term investors should plan for the post-budget stock market and should make proper use of the depressed stock market for this purpose. The interest rates have been considerably cut down on the fixed term deposits. They are not likely to be revised for at least many years. Long-term investors who are interested in investments, which provide better net return than the fixed deposits from the banks, should pick up shares in this depressed market. But care should be taken that the companies selected have good management and fundamentals with high book-values and low P/E ratio and have a good and consistent record to pay dividend. Investors should also look carefully into the quarterly results declared by such companies during the current financial year, in order to assess the annual results which are likely to be declared by them. If the budget makes dividend income tax-free in the hands of the shareholders, such investments will have a prospect of not only giving better than bank interest rate returns but also provide some appreciation in the market price of these shares. The first recommendation for investment is in UTI Mastershare which is at present quoting at Rs 10.65 per unit. It has been consistently declaring 10 per cent dividend and is almost certain to repeat it this year in October. In January 2003, it had a NAV of Rs 11.16. By October, its NAV is likely to improve and the Mastershare is expected to be declared as an open-ended scheme. This means that the investor will not only be entitled to the dividend which may be declared by the UTI for Mastershare units but the shareholder will also have option to opt out of this scheme at the NAV value announced at that time. To my mind it is risk-free scheme with at least 10 per cent dividend within a period of nine months. The second recommendation is investment in the textile shares of three Vardhman group companies. Mahavir Spinning has an equity capital of Rs 25.75 crore with a book value of Rs 163.9 and an EPS of 9.8 with a P/E. ratio of 6.3 only. The company paid a dividend of 42 per cent last year and is quoting around Rs 60 at present. Its quarterly results for the current year are very encouraging and it is almost certain to repeat its dividend of 42 per cent. It can also be a bonus candidate. The second company is Vardhman Poly which also declared 42 per cent dividend last year and is quoting around Rs 40 at present. It has equity capital of Rs 10.68 crore with a book value of Rs 125.7. It has an EPS of Rs 3.8 with a P/E ratio of Rs 10.7. It has also declared good dividend results for the current fiscal. The third company is Vardhman Spinning which has a capital of Rs 15.95 crore and book value of Rs 142.2. Last year it declared a dividend of 25 per cent. But it is expected that for the current year it may declare much better dividend: it may be even 42 per cent. Its quarterly results are very good with an EPS of Rs 9. My preference is for Mahavir Spinning and Vardhman Spinning but Vardhman Poly is also a good investment. There is hardly any doubt that these companies will declare very attractive dividends for the current year. Even though the raw cotton prices have gone up but the quarterly results make it safe for me to say that the dividend return will be maintained in the case of Mahavir Spinning and Vardhman Poly and the dividend rate for the Vardhman Poly will be raised.
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by Pushpa Girimaji Law permits variation in weight Have you ever weighed a packet of confectionary with a declared weight of 100 gm? Try it and you may well find the weight of the confectionary to be only 76 gm. But don’t even think of taking the manufacturer to court for cheating on quantity- he will come out a clear winner and you will lose the legal battle. It’s not the manufacturer’s battery of lawyers that will make it happen, but the law that permits such a wide variation in weight. Rules pertaining to packed goods are meant to protect the interests of consumers. But there are instances where the scales are clearly tipped in favour of the industry, thereby causing huge losses to the consumer. Under the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, all pre-packed goods have to specify on the label, the quantity of the contents. The rules also provide for maximum permissible errors on net quantity declared by the manufacturer and this varies from product to product. It also varies from package to package- lower the weight of the pack, higher the maximum permissible error. And this is where the problem lies. In case of confectionery packs with a declared weight of 50- 100gm, for example, the tolerance limit allowed at the manufacturer’s level is 9 per cent. At the retail level, this limit is doubled to 18 per cent. That’s not all. While stipulating that the quantity of a commodity declared on a package should exclude the weight of the wrapper, the Rules provide for certain exceptions. Where a package contains a large number of small items of confectionery, each of which is separately wrapped, the weight declared on the package may include the weight of such immediate wrappers , provided the total weight of such immediate wrappers do not exceed 8 per cent of the total weight of the package. So, it is legally permissible for a packet of confectionary declaring the net weight on the wrapper as 100 gm, to actually contain confectionery or toffees worth only 76 gm! Similarly, look at biscuits. A packet of biscuits with a declared weight of 100 gm is allowed a variation in weight up to 7 per cent at the manufacturer’s level and 14 per cent at the retail level. So a consumer buying a packet of 100 gms of biscuit may well get only 86 gm. In other words, you may lose as much as Rs 1.40 when you buy a 100 gm packet of biscuits costing Rs 10. And if you think of the total number of consumers who buy such packets, the loss is phenomenal. And to a manufacturer who wants to exploit such leniency in the law and sell much less than the declared quantity, the profit margins are enormous. And he is not violating any law! The government says that in 1977, when the Rules were framed, such large tolerance levels were found necessary. However, now, given the rapid advances in food processing, measuring and packaging technologies, such wide margins are no longer required. Recent studies conducted by the department of legal metrology, ministry of consumer affairs, in fact found manufacturers misusing the wide tolerance limits and the slack enforcement at the manufacturers’ level by actually packing much less than the declared weight ! A Technical Committee constituted by the Ministry of Consumer Affairs six months ago is now re-examining the entire issue and making its recommendations on the basis of studies conducted by regional sub-committees constituted for the purpose. So far it has completed its work in respect of bread, safety matches and edible oil and recommended that the tolerance limits be reduced by 50 per cent from the present level. The Committee is also of the view that doubling the tolerance limit at the retail level worked against the interests of consumers and should be done away with. It is examining this issue too. For a loaf of 400 gm of bread, the tolerance limit is 8 per cent at the manufacturer’s level and 16 per cent at the retail level, whereas the study report submitted by the sub-committee has indicated that the manufacturer can pack the product with a standard deviation of one percent for 400 gm packs. Similarly, the sub-group’s study data shows that manufacturers can pack edible oils in one litre/kg containers or wrappers with a standard deviation of 0.1 to 0.2 per cent. The present tolerance limit is however 2 per cent. In case of safety matches too, it was found that manufacturers can safely pack boxes of 50 sticks with a maximum error of 2-3 per cent. However, the maximum permissible error under the rules at present is 8 per cent at the manufacturer’s level and 16 per cent at the retail level. In other words, a box of 50 sticks could actually contain only 42 and you can’t complain. And manufacturers have been found to deliberately pack only 42 sticks in a pack supposed to contain 50! Once the Technical Committee has completed its work, its recommendations will go the Standing Committee on Packaged Commodities Rules and if it concurs, will get implemented through amendments to the Rules. |
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