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NBFCs from multiple tax: Assocham Bharti
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Manufacturing exports to touch $ 300 b by 2015: study New Delhi, October 24 “The global trend to manufacture and source products in low-cost countries (LCCs) is likely to gather steam over the next 10 years, particularly in the skill-intensive industries, where India has a significant competitive advantage,” states the study. The study asserts that if India could take advantage of this particular trend, it would lead to the creation of 25-30 million jobs in manufacturing by 2015 and two to three times this number in allied sectors like construction, education and entertainment due to the multiplier effect. The aspiration, though ambitious, is attainable. The CII -McKinsey study states that India has several advantages in skill-intensive industries, such as auto components and pharmaceuticals, where the next set of offshoring opportunities will arise. Apart from low wages, these advantages include engineering skills (process, product and capital engineering), established raw material bases, a mature supply base and a growing domestic demand. The study has also found that out of the $ 300 billion of total manufacturing exports, $ 70 billion to $ 90 billion could be captured from just four sectors — apparel, auto components, specialty chemicals and electrical and electronic products. In apparel, global trade could grow from $ 200 billion in 2002-03 to over $ 300 billion by 2015. Of this, India could grow its exports from $ 6 billion to $ 25 to $ 30 billion by 2015. It could thus become the second largest LCC exporter with an 8 to 10 per cent share of world trade, adds the CII-McKinsey study. The study also points out that in auto components, LCC offshoring is poised to take off and could reach $ 375 billion by 2015. “India should aspire to capture $ 20 to $ 25 billion of this by 2015 as compared to exports of just over $ 1 billion in 2003,” states the study. In electrical and electronic products, world trade has already exceeded $ 1 trillion and countries such as China, Taiwan, Malaysia and Thailand all have a significant lead. Offshoring business from developing countries is expected to increase from $ 345 billion to at least $ 600 billion by 2015. “Of this, India should aspire to capture $ 15 to $ 18 billion, as compared to exports of $ 1.2 billion in 2002,” states the study. India’s chemical, engineering and cost-innovation skills could also make the country one of the top two LCC exporters with a potential $ 12 to $ 15 billion in exports, the study finds. The study, however, points out that achieving this acceleration in manufacturing exports would require that Indian players adopt a global mindset, carefully select product segments and rapidly develop India as one of the top three outsourcing hubs. It adds that the government should also implement key reforms in taxation, infrastructure, clusters (SEZs), labour and skill development to help unlock India’s manufacturing potential.
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Exempt NBFCs from multiple tax: Assocham New Delhi, October 24 In a representation submitted to the Finance Ministry, Assocham president Mahendra K Sanghi lamented that the NBFCs’ commercial transactions are at present subject to a plethora of taxes such as central sales tax, state sales tax and service tax, besides tax deduction at source (TDS). He pointed out that unlike NBFCs, scheduled commercial banks were exempted from levy of the aforesaid taxes. “The government should amend the Banking Regulations Act so that like the commercial banks, the NBFCs are also fully exempt from multiple taxations on their transactions to enable them to compete with their rivals on an equal footing,” he said. Mr Sanghi opined that even if the NBFCs adopt the route of granting loans to avoid sales tax and service tax, they were liable to pay TDS at the rate of 20.4 per cent out of their interest earnings which created severe cash flow distortions for them. He said that these para banking institutions had also to pay additional tax on lease transaction ranging from 4 per cent to 16 per cent as central sales tax or state sales tax, depending on the state. “The government should immediately examine the matter of multiple taxation for NBFCs so that their genuine concerns are resolved at the earliest to provide a level playing field to them vis-à-vis banks,” said Mr Sanghi. The chamber also urged the government to cover the NBFCs under Debt Recovery Tribunals (DRTs) and recent Securitisation Ordinance that have empowered banks and financial institutions to recover their dues from defaulting borrowers. It would help them realise their outstanding from their customers, it added.
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Bharti to charge ‘premium’ for roaming in J&K
Srinagar, October 24 “We will charge a ‘hardship’ premium for offering roaming to our network to other GSM operators in J&K as we have taken the hardship of setting up the network in this hilly terrain to offer mobile services with a heavy investment of Rs 125 crore,” Sunil Mittal, group Chairman and MD, Bharti Enterprises, told newspersons here. He said being the first mover (as the first private operator) in the state, roaming connectivity to other private GSM operators (like Hutch, Idea, BPL among others) should be at a premium, adding that at present only Airtel subscribers would be able to enjoy roaming. He did not disclose the amount of the likely premium Bharti may impose on other GSM operators while giving connectivity to its network. BSNL is the only other mobile operator in J&K. The company’s plan is to offer the Airtel post-paid customers in the state out-roaming facility across 337 networks and 137 countries internationally. The customers would also be able to roam nationally across all GSM networks. Airtel post-paid customers, residing in other parts of the country and visiting J&K, would be able to in-roam within the state.
— PTI
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Vat to make tea, coffee bitter
Coimbatore, October 24 Designed to levy taxes on various product categories in four segments, tea and coffee have been placed in the 12.5 per cent category, which has come as a surprise to the plantation industry. Since sales tax on tea and coffee is around 8 per cent in most states, the placement of these commodities in this category and the Vat structure would influence the tax component, pushing it to upwards of 15 per cent, sources claimed. A significant part of this enhanced tax payout was a result of the taxation of trade margins, they said. The industry is also surprised that other items of mass consumption like flour, pulses and salt have been classified in the 4 per cent category. “What makes this fact even more surprising is that some items of niche interest like raw cashews have been classified under the 4 per cent category, while tea has not,” they said. This development is likely to have a drastic impact on the inflation rate, since tea forms one of the items on the wholesale price index. A rise in prices of tea and coffee would imply that the inflation rate would go up further, the industry feels.
— PTI
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India’s trade growth good, says IMF
New Delhi, October 24 "Much of India's recent export growth has been fuelled by trade with Asia, in particular China, where India has managed to more than double its market share," David Burton, IMF Director (Asia Pacific Department) said. He said Asian countries were also major beneficiaries of growing trade with India, whose imports had grown by close to 25 per cent over the past few years. "Greater trade liberalisation and regional integration are also key factors for realising India's potential and benefiting from greater integration into the regional economy," he said. He observed that while India's exports were still growing at a higher pace, the country was a small market for imports from 'Emerging Asia'. “Firstly, India’s imports should continue to grow robustly as investment picks up. Second, India is committed to reduce tariff rates to ASEAN levels. And third, the recent establishment of SAFTA and the bilateral trade agreement with Thailand point to a deepening of regional trade ties,” he said.
— PTI
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Oil prices continue to weigh on markets by Lalit Batra
Profit
booking and high crude prices pulled the indices down last week. The Sensex lost 45 points at 5641 and Nifty lost 15 points to close the week at 1780. Amid good corporate performances, factors like firm crude prices in the global market are weighing on the sentiment. Though inflation has cooled off from its high, the fact is that it is likely to be much higher than the initial estimates. We believe that the negative impact of the rise in crude prices has been underestimated by the stock market. Spiralling oil prices can cause a sharp slowdown in the global and Indian economy and can lead to a meltdown in markets across the world. Further investment in the energy-intensive sector should be avoided. Technical charts also indicate a weak trend, going forward. The next support level for the Sensex is at 5570, if that is breached, then it may drop to the 5400 level. The Nifty is also on a sticky wicket and may crack further to touch 1745 levels in the next fortnight.
Banking Banks, which had a home run till last year on the back of treasury gains, have begun to feel the heat this fiscal as interest rates move upwards. Banks’ plight may get further compounded, if the RBI in its mid-term review of the economy and the monetary policy, this Tuesday, decides to increase the bank rate. Investors may book profit in their PSU banking stocks or may consider shifting to HDFC Bank. HDFC bank is largely insulated from the fluctuation in the bonds market and has reported a solid 30 per cent growth in net profit in the second quarter of this fiscal despite losses on its investment portfolio. Strong growth in the company’s assets continues to be the main driver. The bank continues to keep its interest costs low and this has significantly helped the growth in net interest income. Other income has improved, indicating that the bank has managed to improve its fee-based income and has more than compensated for the losses from its investment portfolio. HDFC Bank’s 30 per cent growth juggernaut may continue to roll for the next couple of years, making it an excellent pick even as the banking industry passes through a tough phase.
Pharma The investor can look to invest in the leading pharmaceutical companies as this is one industry which is largely insulated from the rising energy costs. Indian pharma companies are making most of their low-cost manufacturing and research skills and becoming a force in the global generics market. Some leading names like Biocon and Ranbaxy have reported good numbers and will continue to do well in the medium term. We believe Ranbaxy’s valuations are reasonable, given the company’s strengths and the huge free cash that the business generates. A rapid shift to the speciality space will lead to a gradual re-rating of the stock and any positive surprise may propel the stock further.
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HRA deduction only if rent paid by S.C. Vasudeva
Q: I am a joint owner, along with my father, of a residential property at Last month, however, due to some unforeseen circumstances, I had to leave my own house and shift to a rented accommodation at Mohali itself. My father is still living in the previous house. Now, I want to ask you: (1) In my tax returns for the next year, can I claim additional deduction on the HRA due to payment of rent actually paid for my new rented accommodation, along with 50 per cent deduction on interest repayments and rebate on principal repayments, if we (me & my father) keep on paying monthly loan instalments to the bank but I do not live in that loaned house ? (2) If I am entitled for this additional deduction on payment of rent next year, can me and my wife (a government employee) jointly claim deductions on HRA, 50 per cent each, due to payment of rent? — Baljinder Singh, Mohali A: The answer to your queries is as under: (1) The deduction for the HRA and payment of interest in respect of Capital borrowed as well as repayment of principal amount for purchase of a house are independent deductions and therefore you can claim the deductions in respect of the HRA, the payment of interest and repayment of principal amount. (2) The deduction of HRA is available only to an employee when rent has actually been paid by the employee. For this purpose, the rent agreement that you have entered into with your landlord would be relevant. If both you and your wife are tenants, then if both of you have made payment of rent, you and your wife will be entitled to the deduction in respect of the HRA. However, if the lease is in your name and your wife makes payment of half of the total rental, then in such a situation it will be very difficult for her to claim the deduction in respect of the HRA.
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