New Delhi, November 22
With Kingfisher Airlines and several other carriers landing in dire straits, the industry ministry has moved a draft cabinet note on allowing 26 per cent foreign direct investment by foreign airlines in the domestic carriers.

"Private airlines in the country are in dire need of funds for their operations and service upgrade to compete with other global carriers," the note circulated by the department of industrial policy & promotion (DIPP) said.

The department in the industry ministry has stuck to its guns suggesting per cent cap of 26 per cent and not 24 per cent, as proposed by the civil aviation ministry.

The department of industrial policy & promotion feels anything below 26 per cent would not attract strategic investment from the foreign airlines.

An investor with 26 per cent or more holding is considered strategic, as he can have say in the policy decision of a corporate entity under the Indian company laws. An investor with 26 per cent support can block a special resolution in board of directors for policy change.

The note has been circulated among the key ministries including civil aviation, finance, home and and law.

At present foreign direct investment in domestic passenger airlines is allowed up to 49 per cent by overseas entities, other than the foreign airlines. Nonresident Indians can invest 100 per cent. "Obviously the policy has not worked and it needs changes..." the official said.

Kingfisher Airlines reported net loss of Rs 468 crore, Jet Airlines Rs 713 crore and Spicejet Rs 240 crore for the second quarter of the current fiscal under the impact of rising ATF (aviation turbine fuel) price and weakening rupee.

Most of the private airlines have been seeking policy change for opening the crisis-ridden sector to foreign direct investment. Kingfisher Airlines has also approached the government for direct import of jet fuel. — PTI

New Delhi, November 22
Hit by the depreciating rupee, auto companies, including General Motors India and Toyota Kirloskar Motor, are mulling hike in prices to offset the rising cost of component imports.

"We import lots of parts and the rupee depreciation is impacting us. We were planning to review prices in January but due to the currency fluctuation we may have to do it soon," General Motors India vice-president P Balendran told reporters here.

He said commodity prices have also been increasing, adding to the burden on auto firms. "We are currently evaluating the quantum of impact on the prices of our products," Balendran said.

Expressing similar views, Toyota Kirloskar Motor deputy MD (marketing) Sandeep Singh said the present currency fluctuation is affecting the company severely. "It’s a double whammy for us. On the one hand the yen is appreciating, while on the other the rupee is depreciating. Our margins are getting impacted," he added.

Asked if the company will increase the prices, Singh said: "As of now we are absorbing, but if there is too much pressure, then we will share the burden with customers. "Currently, we are revisiting the prices of all our models. Any new price increase, if we take, will be applicable from January 1."

The plunging rupee is putting severe pressure on companies that import substantial amount of components from overseas. "The rupee depreciation is adversely impacting us as we’re a net importer. "The rupee depreciation is adversely impacting us as we are a net importer. This is the worst movement of the rupee against dollar. ”, Maruti Suzuki India CFO Ajay Seth said.— PTI

New Delhi, November 22
The UPA government may not be able to keep its date with the direct tax code (DTC) for April 1, 2012. The babus in the finance ministry seem to be in no great hurry to push through the DTC bill, which is considered to be the baby of the previous finance minister, P Chidambaram, now the home minister. There is “no conspiracy” to sabotage the bill, but it is falling apart because of delays and the changing scenario and departure of Chidambaram and company.

The DTC aims to replace the five decade old Income Tax Act of 1962 with the object of simplifying tax laws and reduce litigation.

The code, which was on the drawing board for almost four years, was included in the “100 days action plan” programme of the UPA-II government when it came to power in 2009. When put in the public domain for discussion, the code met with strong opposition from almost every section of taxpayers leading to a total revamp of the draft code, an exercise still in progress.

The parliamentary standing committee headed by the BJP leader and former finance minister Yashwant Sinha, looking into the draft bill is yet to finalize its recommendations.

Mukherjee's plan to operationalize it from April 1, 2012, may, however, be ambitious as ministry mandarins are still mulling over the draft provisions.

To present a draft of DTC in Parliament's winter session and getting it through, when the `Jan' Lokpal Bill movement is raising its head once again and widespread disruptions in proceeding in both houses are likely to be the norm, may be a tall asking. Recent controversies relating to the 2G scam and the Mukherjee-Chidambaram confrontation, unremitting inflation and the internecine fight may only add to the government’s discomfiture.

Sources close to the income tax department said there was no denying the fact that the present income tax law, which has over 2,000 sections/subsections, required "some dieting as had has become too obese," adding to its complex provisions formulated over four decades on the case laws pronounced by the Supreme Court and various high courts, running into more than 300 volumes of income tax reported cases.

"How simplified the code is going to be we’ll see when it is implemented," a senior official in North Block said, pointing out after all the tax reforms, including the one formulated by the Raja J Chelliah committee, remained a product of imagination.

Sources close to the finance ministry indicated there were still many gaps in the government draft of the DTC, some of it too glaring for the standing committee to ignore. The law ministry appears to have made a number of changes in the draft code, changes that may require fresh look by the panel.

Even if the DTC Bill gets introduced sometime during the session, the far reaching legislative imitative to replace the IT Act of 1962 would require detailed discussions, a process that may spill over into the 2012 budget session.

When the draft code was introduced in 2009 there were specific provisions to offend almost every section of taxpayers, including individuals whose savings were sought to be taxed. Foreign companies, the corporate sector and various chambers of commerce too had serious reservations on the draft code’s contents.

Mukherjee, on whose lap the Chidambaram dropped the lemon as a parting gift, was hard put to sell the unsaleable product to the taxpayers. The outcome of Mukherjee's reassurance visit to various financial centres is the present watered down versions of Chidambaram's dream code which is anemic and has left fiscal experts and senior IT department officials wondering on the need for such a code that broadly seems to paraphrase the existing law.

The cosmetic changes and rearrangement of chapters in the draft DTC would, if any thing, spawn fresh rounds of litigation even in respect of most well settled legal principles and interpretation of tax statutes, much to the delight of the legal fraternity.

Sources fear the draft code in its present form will have a continuously unsettling effect on taxpayers as it will be administered by rules. With a bureaucracy that is susceptible to come under pressure from lobbies frequent changes in legal provisions effected through rules will not surprise anyone.

Irate babus of the Central Board of Direct Taxes (CBDT) can easily undo the rightful claims of taxpayers through notifications and rules. Consequently, the law will become too "dynamic." In the earlier regime such changes would have required amendments to legal provisions that in turn would have required parliamentary route and regulation.

Those in the know of working of the laws say that even if the bill is passed, its implementation will be a challenge as well to both the CBDT and to its field officers and, certainly, taxpayers and tax advisors who will now have to comprehend a whole new set of laws and rules.

Understanding the provisions and disseminating it to a cadre of 1,500 officers and to equip them through training will be a huge task. Writing of software to the new law and to allow the two statutes (the 1962 Act and the DTC) to run on the system would be a greater challenge. A senior official who is overseeing the computerization confirmed any “request for proposal” of software could start only after the legislation is passed and the software vendor is selected.

In this scenario like the “goods & services tax”, the FM may have to set a fresh date for enforcement of the DTC, and perhaps select a more realistic date of April 1, 2014 as even April 2013 will be very ambitious.

A senior department official opined it would be better for the CBDT to identify specific provisions of the code which are of lasting value, particularly in areas of international taxation and tax treaties and “black” money tracking, and introduce a taxation amendment bill, 2011 and make it effective from April 1, 2012.

"The DTC can then be taken up at a later date or given a quiet burial that would be appropriate as the present draft code, drawn up with the object of simplification of tax law, is unlikely to achieve the objective," suggested a senior official.

New Delhi, November 22
Seeking permission for direct import of jet fuel, Kingfisher Airlines has informed the government that steps are being taken to improve cash flow of the debt-ridden carrier by procuring ATF through suppliers' credit on lower interest rates.

"...It’s essential for us to improve our cash flow on an urgent basis. Sourcing of ATF (aviation turbine fuel) through imports has the potential to lower our overall procurement cost of ATF...bring down our cost of working capital as suppliers' credit at lower interest rates will be feasible," the beleaguered airlines said in a letter to the directorate general of foreign trade (DGFT).

It said the ATF that constitutes about 40% of the total operating cost of an airline, attracts sales tax between 4% and 30% in different states. The airline would make arrangements with service providers for storage and handling of ATF at ports and into planes at Delhi, Hyderabad and Bangalore airports.

Sources said the DGFT has sought from the airline details like the quantity and value of imports proposed to be imported directly.

According to the foreign trade policy, only state trading enterprises like IOC are allowed to import the ATF. However, DGFT has powers to "grant authorisation to any other person to import any of these goods on grounds of genuine hardship".

Even in 2008 Kingfisher had made a similar request to the DGFT, which was declined by the petroleum ministry. Views of the petroleum and civil aviation ministries would be sought before DGFT takes a decision on the issue, sources said. Kingfisher has a debt of over Rs 6,000 crore. — PTI

New Delhi, November 22
Facing reduced profits in the wake of increased competition and strong cash outflow as a result of high 3G spectrum auction costs, the top telecom operators of the country have written to Prime Minister Manmohan Singh to intervene on the matter of 3G roaming pacts entered into by them to bring down their working costs and have sought the refund of their investments if these agreement were not permitted.

With the department of telecommunications and the Telecom Regulatory Authority of India (TRAI) being of the view that the pact entered into by big three GSM mobile operators — Bharti Airtel, Vodafone and Idea — were illegal as they violated the 3G licence agreement, the understanding between the operators is on the knife edge with the telecom ministry also looking to penalize the operators for entering into such a pact which violated the 3G licence agreement.

DoT feels the agreements violated licence norms with several sections of the department terming the agreements “illegal”. The telcos coughed up over Rs 67,000 crore for acquiring 3G airwaves and mobile permits in a government auction last year.

The telcos have been reeling under increased debt burden after they acquired broadband wireless permits, soon after the 3G auctions. While margins have been squeezed, the average revenue per user has been declining consistently and tariffs paid by customers remain the lowest in the world.

The ongoing 2G spectrum allocation scam and its possible outcome has also caused a lot of uncertainty in the sector.