The Tribune, Chandigarh, India

	AP introduces bill to regulate MFIs Tribune News Service Hyderabad, December 11 For the first time in the country, Andhra Pradesh has come up with a bill to regulate Microfinance Institutions (MFIs) which are under scanner for allegedly imposing exorbitant interest rates and coercive loan recovery methods. The bill, which will replace an ordinance promulgated in October, was tabled in the state Assembly today by Legislative Affairs Minister D Sreedhar Babu. Significantly, no amendments have been suggested to the ordinance which is being strongly opposed by MFIs. The MFIs say the new norms envisaged in the ordinance for registration, loan disbursal and collections would make it very difficult for them to operate. The legislation, if passed without any amendments, would spell doom for the microfinance industry, warned Mi rofinance Institutions Network (MFIN), a self-regulatory body of 44 top micro lenders. AP is the largest market for MFIs accounting for one-third of the total lending in the country with over 65 lakh borrowers. The AP Micro Finance Institutions (Regulation of Money Lending) Bill is expected to come up for debate in the House on Tuesday. Going by the political mood in the state, it is likely to be passed without any changes. The legislation comes in the backdrop of a spate of suicides by rural borrowers, a majority of them women, due to unbearably high interest rates and the alleged coercive practices of MFI agents. The bill seeks to curb their “unlawful activities” and enforce discipline in lending. As per the legislation, the total interest payments should not exceed the principal loan amount. It also envisages stringent punishment, including imprisonment up to three years, for using coercing methods. The registration of MFIs has been made compulsory while collections should be done once a month instead of the present practice of weekly collections. The MFIs pointed out that the ordinance, issued on October 15, had hit their operations very hard. “As a result of the restrictions, the collections have fallen to 20 per cent from 95 per cent earlier. We could not disburse loans worth Rs 1,200 crore to an estimated 12 lakh rural women. The ordinance has had a devastating impact on access to finance for poor and low income households,” the MFIN President Vijay Mahajan said. The MFIN wants the government to wait for the report of YH Malegam committee, constituted by RBI to look into the Microfinance lending process, before passing the legislation. “There are some rogue MFIs who are bringing discredit to the entire sector. They should be punished. But, you cannot paint all the companies with the same brush,” said Vikram Akula, the founder of India’s largest MFI, SKS Microfinance.
	Ethiopia woos Punjabi farmers Neeraj Bagga Tribune News Service Amritsar, December 11 About 40 enterprising farmers are presently exploring the opportunities to set up their farms in Ethiopia, said Mehreteab Mulugeta, Minister Councillor (II), Economic and Business, Ethiopia, on the penultimate day of the Punjab International Trade Expo (PITEX) 2010 here today. It is for the first time that Ethipoia participated in the PHD Chamber-organised exhibition. With surplus cultivable land available with the African nation, the Ethiopian Government established a land bank of 1.7 million hectares under the ministry of agriculture for the Foreign Direct Investment last year, said Mulugeta. He said “My government is extending full cooperation to the Punjabi farmers to set up farms to produce wheat, rice, oil seeds, vegetables in addition to tea and coffee in his country”. He said as per the norms the land was given on a minimum lease for 25 years to maximum 45 years. All investors are facilitated with a seven-year tax holiday. Besides, the investors who export 75 per cent of their produce are eligible for a loan from local banks to the tune of 70 per cent of the total project. The investors are empowered to repatriate even 100 per cent of their earnings to any country out of Ethiopia, he added. Meanwhile, the investors have to invest at least one lakh US dollars to qualify for setting up a farm in Ethiopia. He said Ethiopia offered a lot of opportunities for investment in real estate, infrastructure, hotel management, hospitality, hospital, education, mining in gold, coal potassium, iron ore and limestone. Mulugeta said the trade between the two countries stood at $500 million though the trade balance was in favour of India. Dalip Sharma, Regional Director, PHD Chamber, said a delegation from India had visited Ethiopia last month and explored trade opportunities there. He said because of little population and availability of surplus land there were ample opportunities for investment in agriculture, food processing and mining in Ethiopia. Meanwhile, Commercial Councillor, Bangladesh, Mohammad Habib Ur Rahman also visited the exhibition and disclosed that his country would participate in the next edition of the exhibition. He said his country looked forward to partnership with this part of India in manufacturing, real estate and infrastructure.
	Aviation Notes Operators ‘regulate’ DGCA by KR Wadhwaney The government men-politicians and bureaucrats-are hand in glove with private men for doctored fares on domestic sectors. Politicians subtly and private airlines' barons blatantly have fractured passengers' pockets and happiness clogging civil aviation sector more messy and polluted than before. Almost regularly - twice a year - during holiday/ festival seasons, the fares take flight; passengers stay grounded on renovated or new terminals and congested tarmacs as airline bosses go laughing to their banks. The history screams that the regulatory authority in the directorate-general of civil aviation (DGCA) does not regulate airlines but operators regulate the authority to toe their line of action. Whatever authorities' claims, the ministry and DGCA have not handled the air fare malaise with firmness and ruthlessness the fare structure has warranted it. To say that the air fares have been reduced by 25 per cent is a very misleading statement. There is a huge difference in saying that 'glass is half-full or glass is half-empty'. The fact is that the airlines have jacked up fares by 25-35 per cent in one go forcing travelling public to 'accept them or lump them'. All this is happening because private players enjoy 'subtle patronage' of the powers that-be. The figures provided by the airlines are cleverly and shrewdly manipulated causing further confusion to both passengers and authorities. The fact, again, is that the passengers' interest has not been protected. The playing field has been rendered more uneven than before and thereby welfare of the national carrier has not been safe-guarded. If the Minister of State for Civil Aviation Praful Patel and Civil Aviation Secretary N.Zaidi mean business in providing the much-needed respite to the travelling masses, they should fix fares in Air India. If the prices in the national carrier stay considerably lower than the private airlines, the passenger will change their loyalties from private airlines to Air India. The load factor will undergo sea change. Instead of taking off with 25-35 per cent passenger load, the Air India flights will be fully occupied with the load of 90-95 per cent passengers. This will force private airlines to see reason and lower their fares to make them competitive with Air India. The government's first priority should be welfare of passengers and health of the national carrier. Again, it is a known fact that 'troubled' national carrier is in open competition with private operators who, for one reason or another, are 'preferred' airlines than Air India. Keeping all facts, figures and intricacies in mind, it will be in fitness of things if the authorities regulate Air India fares and this will force private players to fix fares.
	Investor Guidance No dividend distribution tax on equity schemes by AN Shanbhag Q: I have investments in Mutual Funds in totaling Rs. 4,000 per month and selected option of Dividend Reinvestment. I have investments in HDFC Top 200, Reliance Vision, Reliance Growth and Fidelity Equity Fund of Rs. 1,000 each per month. I read somewhere that the rate of Dividend Distribution Tax is 12.5%. As I have chosen Dividend Reinvestment option, am I paying Dividend Distribution Tax? If yes, can I switch to Growth option now, please advise. — S. P. Bansod A: 1. While it is true that the rate of dividend distribution tax is 12.5%, note that the same is applicable only to non-equity schemes. There is no dividend distribution tax applicable in the case of equity schemes. All the schemes you have mentioned are equity-based and hence there is no dividend distribution tax levied on any dividend, whether paid or reinvested. You have an undisputed right to switch from one scheme to another scheme of the same MF or from one option to another option of the same scheme. However, to address the principle behind your query, where the dividend distribution tax is applicable, it applies to both dividend option as well as the dividend reinvestment option. In dividend reinvestment option, additional units are allotted in lieu of the dividend. Such dividend is net of the distribution tax i.e. the amount of dividend against which units will be allotted will be an amount after reducing the dividend distribution tax. Lastly, switch from dividend or dividend reinvestment option to growth will entail capital gains tax incidence. Capital gains Q: I am about to sell a property that I inherited from my deceased father. How do I calculate capital gains? Is it from the date on which my father passed away or from the date from which the inheritance was handed over to me? — Ketki M. A: For any inherited assets, the cost to the previous owner has to be adopted by the seller as his cost. Therefore, in your case, the cost of acquisition paid by your father for the property would be taken as the cost of the property. The same may be indexed and then such indexed cost has to be reduced from the sale proceeds to arrive at the long-term capital gains (LTCG). The LTCG so calculated will be taxed @20.6%. In case your father had acquired the property prior to 1st of April, 1981, the cost as on 1st of April, 1981 can be taken as the deemed cost of the property. For this purpose, you will have to get the property assessed by a chartered valuer who will certify its cost as on 1st of April, 1981. Tax resident Q: I am a 70 years old retired US citizen having acquired US citizenship in 1979. I was in India from January 31, 2010 to July 15, 2010 to help my aging mother. I would like to go back to India to help her. I would like to understand the tax consequences with the current law and proposed DTC. Under the current law, if I stay for more than 182 days in any financial year, I become tax resident. 1. If my income in India is only one fourth of the threshold income of Rs. 1.60 lakh, I don’t think it is necessary to file tax return. 2. Under what circumstances, do I have to include my US income? What part of my US income which includes social security, retirement pension from a private co, interest and dividend income has to be included? If we file a joint return in US, can the wife's income be excluded as she will be in US? 3. I gather that under DTC, stay of more than 59 days could make a person of Indian origin liable for Indian taxes. Would this be applicable to retirees? Or will they be excluded? I am sure that there may be many others in a similar situation; your kind reply will be greatly appreciated. — Rao A: You are correct in observing that if you stay in India for 182 days or more, you become a tax resident. However, there is also a provision whereby if you have been an NRI in 9 out of last 10 years or have been in India for 729 days or less in the past seven years, you will qualify to be an RNOR. For an RNOR, foreign income remains tax-free. So even if you end up losing your NRI status in any year, if you qualify to be an RNOR in that year, your foreign income like pension, interest, dividend etc. will continue to remain tax-free. Such RNOR status is available for two years. If your taxable income in any financial year is less than Rs. 1.60 lakh, you do not have to file a tax return. Your wife’s income will not be taken into consideration for arriving at your taxable income, it is only your individual income that has to be accounted. India does not offer or recognize joint tax filing. The new Direct Tax Code (DTC) will only be applicable from the 1st of April, 2012. There have been media reports that as per the provisions of DTC, a stay of over 59 days per se would make a person a tax resident - however this is not strictly true. There are some additional requirements and conditions that too need to be fulfilled. However, space constraints prevent a detailed discussion at present. However, next weeks column will discuss this subject in detail. NRE account Q: I am an Indian National planning to move Middle East for a job opportunity. If I want to invest in Indian equity mutual funds in India through my NRE account, redemption at later date in the same NRE account is fully repatriable or not ? 2. What about tax laws i.e. applicable taxes in case of short term and long term capital gain as well as losses? — Kirit Pandya A: Yes, any redemption of an equity mutual fund originally having been invested from funds in the NRE account may be credited back to the NRE account. Money in the NRE account is fully repatriable, so once you receive the credit into your NRE account, you may repatriate the funds anytime. The taxes are not any different from what is applicable to a resident Indian in as much as long term gains from equity and equity mutual funds are tax-free, short-term gains are taxable @15% and dividends too are fully tax exempt.