Chidambaram sharpens taxaxe forthe big fish
VRISHTI BENIWAL
New Delhi, 26 September
Finance Minister PChidambaram is planning to tighten the tax network.
There is a plan to revive the large taxpayer units (LTUs) set up by
him in 2006.
The finance ministry may make it mandatory for some companies to
approach LTUs for all matters related to central excise, service tax
and income tax, or corporation tax. While this is expected to reduce
the tax compliance cost and delays for "honest taxpayers", evaders
will find it difficult to dodge the taxman.
Currently, LTUs function in Bangalore, Chennai, Mumbai and Delhi, but
the scheme has not been successful as not many taxpayers volunteer for
fear of closer scrutiny. For instance, in Mumbai, only 39 taxpayers
have registered with the LTU.
Those paying excise or service tax in cash of over ~5 crore or income
tax/corporation tax of over ~10 crore are eligible to register with
LTUs. Now the finance ministry may consider extending the scheme to
other cities while making it compulsory for some big taxpayers by
raising thresholds. A plan to open an LTU in Kolkata is in the works.
"A proposal to make LTUs mandatory is under consideration," said a
ministry official. Another official said the performance of LTUs had
not been satisfactory and there was aneed to revive the scheme.
The Shome panel on General Anti-Avoidance Rules (GAAR) has also
suggested making LTUs compulsory for aspecified class of taxpayers in
line with the international practice. Considering the high threshold
of tax benefit (~3 crore in a year) for the invocation of GAAR, the
majority of cases might come under LTU, it said.
Earlier this month, Chidambaram had asked officers to focus on low
taxpaying sectors to add an additional ~30,000 crore to the revenue
kitty.
The minister said though the applicable tax rate for corporations was
30 per cent, the effective tax rate was just 24 per cent and even
lower in some sectors. He said instead of randomly going after
taxpayers, most of whom duly paid taxes, the department should focus
on those belowaverage sectors to see whether the average could be
raised for greater collection.
LTUs act as a single-window facilitation centre for entities to get
assessed for all kinds of central taxes. The concept was introduced to
assist large taxpayers in filing of documents, refund claims and
settlement of disputes. As LTUs handle cases of companies having a
presence in several locations, the ministry believes these can play a
crucial role in the tax scrutiny of large taxpayers through closer
coordination between the income tax and excise departments.
"This enables in-depth analysis of the finances of big corporate
houses and helps prevent tax evasion. The LTU may become more
effective if the audit cycle of income tax, service tax and excise is
aligned," said a White Paper released by the ministry on black money
some time ago.
Though all three departments are included under LTUs, they scrutinise
different accounting periods at the same time, which reduces the scope
for simultaneous scrutiny and examination of the assessee.
Analysts say a reason for the lukewarm response could be scepticism
among taxpayers it might go against them. "There is a perception large
taxpayers may be asked to pay more at LTUs. They can make it mandatory
from a compliance perspective but the intention should be to give them
better service," said Neeru Ahuja, partner, Deloitte.
As the government is trying to introduce a Goods & Services Tax in the
country, the scope of LTUs may be widened to cover state taxes too.
That may require better IT infrastructure and a bigger team of
officials to handle more taxpayers.
Mandatory scrutiny soon by large taxpayer units the FM set up in 2006
|Filing of returns/documents at one place |Electronic filing of return
and tax payment |Single-point interaction with tax officers
|Inter-unit transfer of Cenvat credit |Taxpayers not subjected to
mandatory audit |Uniformity in all tax-related issues |Faster disposal
of claims and other processes
Mallya battles angry shareholders
NAN EVENTFULDAYFOR MALLYA N
BS REPORTER
Bangalore, 26 September
At Kingfisher Airlines' annual general meeting today, Chairman Vijay
Mallya once again assured aggrieved shareholders he would get the
company back into shape.
A year earlier, Mallya had uttered the same words. However, since
then, the condition of the company has worsened.
Compared with aircraft strength of 66 earlier, Kingfisher Airlines now
has about 40 aircraft, of which 15 are operational. It is understood
the airline has lost about four slots in the Mumbai airport. The
airline, which earlier operated about 360 flights a day, currently
operates merely 80 flights a day.
The company's debt has risen to about ~9,000 crore, on a negative net
worth, and it has failed to record a profit in the six years of
effective operations.
Many shareholders were critical of how the company's debt had
spiralled out of control and the fact that the management had not
taken active steps to prevent this. Some even termed the management
ineffective, adding it needed a change. Also, many shareholders said
if the current management continued to be in place, the government's
recent announcement of allowing foreign direct investment into the
civil aviation sector wouldn't be of much help to the company. Some,
however, supported Mallya, saying all businesses saw ups and downs.
Mallya, they added, should turn the situation around as soon as
possible.
Mallya told shareholders while the situation was tough, given the
operating conditions, all efforts to recapitalise the company had been
made. "What can Isay in such a situation, when the media is on an
overdrive, writing negative stories on Kingfisher? But my
responsibility is towards the shareholders and I can assure we are
putting in all efforts to put the company back into shape," he said.
"FDI in aviation has been opened up, and we are engaged with a few
strategic global players, in addition to few Indian investors," he
added.
A few shareholders said Kingfisher's dismal state of affairs was
affecting the UB Group. Some said it was sad Kingfisher Airlines
employees were not being paid salaries since the past four to six
months.
Shares of KFA today surged about 9 per cent after Mallya said the
carrier was in talks with foreign airlines for a possible stake sale.
'I am a businessman and I will sell businesses at the right price'
Will it not be a setback if you have to cede control to Diageo
are on and there is no certainty of the transaction going
What options are you exploring in these negotiations?
When Scottish & Newcastle acquired stake in United Breweries, there
was enormous wealth created and it continues to do so in the joint
venture with Heineken. I will be driving the talks with Diageo with
the same focus. If you go back in history, I acquired Berger Paints
and exited with a hefty premium. There are enough such examples in the
past 31 years of my life with the UB Group and it will continue.
What are the next steps you are initiating in weaning KFA out of the
high debt issues it is under?
First, we are doing all we can to recapitalise the airline. During the
past eight-months of this financial year, the promoters have infused
~1,154 crore into it. This is a concrete indication that we are fully
committed to this business, despite tough working conditions. Now,
with the Government of India officially notifying the foreign direct
investment move in civil aviation, we are indeed engaged with a few
strategic global aviation players, as well as some Indian investors.
It has been hardly around a week since the decision was notified and
things will play out. We have 40-aircraft under our rolls and we will
eventually scale up operations.
On hindsight, was venturing into civil aviation a costly mistake,
given that the problems of Kingfisher are starting to affect other UB
Group companies?
There have been many external factors which affected the operations as
we were expanding. The price of oil doubled from $40 a barrel and the
rupee depreciated. We had also ordered a certain number of aircraft
from Airbus and due to these external factors, we could not just
cancel the order.
VIJAYMALLYA
Chairman, UB Group VIJAYMALLYA ,billionaire chairman of UB Group, is
in a tough situation, with his Kingfisher Airlines in a tight corner
and the possibility of ceding control over his flagship, United
Spirits, to Diageo. In a conversation with Raghuvir Badrinath after an
eventful AGM of Kingfisher, he clears the air on many aspects. Edited
excerpts:
Confirms talks underway with strategic players
Reebok seeks more time from RoC to file accounts
SUSHMI DEY
New Delhi, 26 September
In a new twist to the controversial Reebok India case, the sports wear
maker has sought an extension of two months from the Registrar of
Companies (RoC) to file its audited financial and accounting details
for 2011-12.
"Though usually the accounting is done for a period of 12 months
(January-December in case of Reebok India), Reebok has sought
permission for the same for a period of 15 months, starting January 1,
2011 to March 31, 2012," a senior government official in the know of
developments told Business Standard .
An email query to Reebok India remained unanswered till the time of
going to print.
The move is significant, as this may prompt investigating agencies to
take a look at the fresh accounting statements to be filed by the
company to RoC, before taking a final call.
Subhash Gulati, counsel of Subhinder Singh Prem and Vishnu Bhagat —
the former top executives of Reebok India allegedly involved in afraud
of ~870 crore in the company — had earlier said that all the pending
return statements concerning the goods in question as of December 31,
2011, which stood at ~62.99 crore, were processed and duly reconciled
between January and March 2012, whereas the complaint filed with
Gurgaon police talks about status only till December 31, 2011.
In a First Information Report (FIR), filed with the Gurgaon police on
May 21, Adidas AG, the German parent company of Reebok, had accused
Prem and Bhagat of "criminal conspiracy" and "fraudulent" practices
over a period of time that allegedly caused the company a loss of ~870
crore. While various investigating agencies are still probing the
case, the Gurgaon Police last Wednesday arrested the two former
executives, along with three other persons. All five are currently in
police remand for seven days.
A special investigation team (SIT) of the Gurgaon police, which is
probing the case, has said it has found four illegal warehouses, whose
existence was not disclosed to auditors, tax authorities or to the
Adidas management in Germany. The SIT has also alleged that billed
goods worth ~62 crore were kept in these warehouses but not
dispatched. Besides, the SIT has contended that the group of five
accused was involved in fake sales and falsification of accounts since
2005.
According to sources, the Serious Fraud Investigation Office (SFIO),
the investigative wing of the Ministry of Corporate Affairs probing
the case, is also in the process of drafting its report and has found
falsification and fudging of accounts. However, with the latest
development, now the investigating agency may decide to take more time
and also look at the fresh financial statements that Reebok would give
to RoC.
Minister of Corporate Affairs M Veerappa Moily, however, said that
SFIO is expected to give its report in October.
According to the official, Reebok has told the RoC it could not
finalise the statutory audit of its accounts by December because of
all these problems that happened due to financial irregularities. "It
has therefore sought an extension and will submit audited accounts for
15 months period by November," he said. Reebok was to submit
accounting statements to RoC by September 30.
Tax residency certificate must for foreign investors
PRESS TRUST OF INDIA
New Delhi, 26 September
All foreign investors will have to produce tax residency certificates
(TRC) of their base nation to claim benefits under the double taxation
avoidance treaty from April 1, 2013, says a government notification.
The amendments to the Income Tax Act, 1961, the Central Board of
Direct Taxes (CBDT) said, will take effect from April 1, 2013 and will
apply in relation to the assessment year 2013-14 and subsequent years.
The notification amends Section 90 and Section 90A of the Act dealing
with taxation of foreign investment and tax benefits under the Double
Taxation Avoidance Agreements (DTAAs). Currently, India has a total of
84 DTAAs with foreign countries.
The TRC for availing tax benefits was proposed in the 2012-13 Budget,
presented by the then Finance Minister Pranab Mukherjee.
The TRC to be obtained by an assessee, not being a resident in India,
from the Government of the country or the specified territory, shall
contain the name of the assessee, status as to whether it is an
individual or company, its nationality and country wherein it is
registered or incorporated.
Besides, the TRC should also have the tax identification number of the
assessee, its residential status for the purposes of tax, period for
which the TRC is applicable and address of the assessee during that
period.
Under a clause in the DTAA entered into between two countries, the
assessee can take the advantage of paying capital gains tax in either
of the two nations. PTI
Sebi moves SCagainst Sahara Group
PRESS TRUST OF INDIA
New Delhi, 26 September
The Securities and Exchange Board of India (Sebi) today approached the
Supreme Court, accusing the Sahara Group of not complying with its
order to furnish documents about its two companies which were directed
to refund around ~24,000 crore to their investors.
Sebi filed an application alleging that the Sahara Group has not
furnished all documents in their custody to the regulator by September
10, as required.
The court on August 31 had said that if the companies, Sahara India
Real Estate Corporation and Sahara Housing Investment Corporation,
failed to refund the amount, Sebi could attach properties and freeze
bank accounts of the companies.
It had also asked the companies to refund the money to their investors
within three months with interest.
IPOs a costly affairforsmall companies
SAMIE MODAK
Mumbai, 26 September
Smaller companies have to pay heavily to raise money from the capital
markets due to stricter regulatory requirements and heavy expenses for
marketing the issue.
Some of the small and medium enterprises (SMEs) that have raised
capital by way of initial public offerings (IPOs) have shown
'issue-related expenses' of as much as 13.5 per cent of the total
issue size, shows information available in the final offer documents
filed with the Registrar of Companies.
For instance, Jupiter Infomedia raised a little over ~4 crore through
the Bombay Stock Exchange's SME platform in August and had to spend
~55 lakh, or 13.5 per cent, on issuerelated expenses. The SME issues
of Thejo Engineering, BCB Finance and Sangam Advisors had to spend
between eight and 10 per cent of the issue size.
Issue-related expenses include merchant banker fees, underwriting
commission, legal fees, printing and advertisement expenses and
listing fees payable to the stock exchanges, among others.
Market experts say the actual costs incurred by these companies could
be much higher than what is reflected in the offer documents. "There
are additional regulatory requirements like market making and
underwriting in SME IPOs. To fulfill these requirements, merchant
bankers need to have capital in their own account, adding to the
costs," said Rajesh Dubey, founder of SME BOTS LLP, a firm advising
smaller companies on IPOs. "Of the SME IPOs that have hit the market
so far, only one issue had a reputed banker. So, its possible that
bankers and issuers can have some offline arrangement." The average
issue-related expenses incurred by the eight SMEs that have raised
money through IPOs so far is about 8.4 per cent. More than half these
costs are spent on merchant banking fees. Also, other costs like those
on printing of prospectus and the mandatory pre- and post-issue
advertisements are high, relative to the funds raised.
"As the risk associated with SME IPOs are more, expenses, like
merchant banking fees, are higher," said B Madhuprasad, vice-chairman,
Keynote Corporate Services. "Unlike a book building IPO, financial
closure is guaranteed in SME IPOs, as bankers have to offer 100 per
cent underwriting. So, if the issue fails to garner full subscription,
it gets devolved on the merchant bankers." Besides underwriting,
merchant bankers handling SME issues have benefits.
"The cost is front-loaded in SME issues. If a company goes for a term
loan, that also has to be repaid in five years and interest rates are
high. So, if you look at IPO costs over a five-year horizon, it is
just two per cent every year. Also, companies can leverage their
equity to raise debt in the future," he explained. HIGH COSTS
An average 8% ofthe funds raised are spenton expenses in SMEIPOs
In ~cr Total Issue Expenses as % expenses size of issue size
JupiterInfomedia 0.6 4.1 13.5 Thejo Engineering 1.8 19.0 9.5 Sangam
Advisors 0.4 5.1 8.3 BCB Finance 0.7 8.8 7.9 MaxAlertSystem 0.6 8.0
7.5
Source: Offerdocuments
About 10% of funds raised are spent on these expenses, as the risks
involved are more than those for larger firms
ILLUSTRATION: AJAY MOHANTY
MCX to launch two innovative contracts
BS REPORTER
Mumbai, 26 September
The Multi Commodity Exchange (MCX) will launch two innovative
contracts — Silver 1000 and cotton seed oil cake or Kapasia Khalli (as
it is popularly known) — from tomorrow.
Silver 1000 is a deliverable 1-kg silver contract. New Delhi, one of
the largest consumers of silver in India, will be the base delivery
centre for this contract. Silver 1000 is expected to cater to the
needs of small jewellers and retail investors who wish to take
physical delivery of a 1-kg silver bar in demat or physical form.
"Silver 1000 will meet the needs of physical market participants and
retail investors. It will enable them to take delivery of 1-kg silver
bar at lower margins, compared to the hitherto 30-kg bars," said
Shreekant Javalgekar, MD & CEO, MCX.
Kapasia Khalli is the byproduct, which remains after oil from cotton
seed. It is primarily used as cattle feed. The trading unit of the
Kapasia Khalli contract is 10 million tonnes and its tick size is 50
paise per 100 kg (inclusive of sales tax/VAT).
"The Kapasia Khalli contract with a tick size of 50 paise will ensure
better liquidity," said Javalgekar.
Sahara-massive, splashy, mysterious
>REUTERS
Khalilabad, 26 September
Like millions of Indians, Jag Ram Chaudhary invested with the Sahara
conglomerate - ~1,300 ($24) amonth in his case - to put away money for
a rainy day.
"My wife had an accident some years back. I dont have much savings, so
I thought Ill be able to save some money by putting in a small amount
every month," said Chaudhary, an office helper at a construction
company in Uttar Pradesh.
On August 31, the Supreme Court ruled that finance schemes run by two
Sahara companies were illegal and ordered it to repay as much as $4.5
billion to up to almost 30 million mostly small investors, plus
interest. The final figures are still to be determined as some clients
have already redeemed their investments, lawyers on both sides of the
matter said.
The case has shone a rare light on the unlisted giant whose interests
range across finance, housing, media and entertainment.
Sahara has accumulated a string of trophies in recent years, including
a stake in a Formula One motor racing team and ownership of Grosvenor
House hotel in London. In July, it agreed to buy a controlling stake
in New Yorks Plaza Hotel.
But its core client base is the towns and villages away from the shiny
cities of modern India. There, Sahara sells investment products to
often poor people in amounts as small as ~2 (4 US cents) aday. The
company is a household name in India through its lead sponsorship of
the national cricket team.
"Banks take eight years to pay what I get from Sahara in five years,"
Chaudhary, 40, said in Khalilabad, a town in Sant Kabir Nagar district
in northern India. Like several Sahara customers interviewed nearly
two weeks afterwards, he had not heard of the court ruling.
SPENDING POWER
Critics, including activist groups, say Saharas investment products
are designed to evade oversight by financial regulators and that it
lacks transparency on the source and use of its funds, selling
products to investors who do not understand the risks and ploughing
the proceeds into real estate projects.
Under the scheme rejected by the Supreme Court, two firms owned by
Sahara had offered bonds to small investors, promising, in some cases,
to return three times the face value after 10 years.
The court ruling that it raised money by "dubious" means follows
another rebuke in 2008, when the central bank ordered a Sahara company
to stop taking deposits from the public.
In a country where "black money", or undeclared wealth, is rampant,
Saharas size and spending power have long fuelled speculation over how
the company operates.
Sahara, headed by Subrata Roy Sahara, its chairman and self-described
"managing worker", says it helps small investors outside the banking
system and that it has never defaulted on them.
"Sahara agents motivate people who would otherwise spend the money on
liquor, gambling, etc," said Guddu Pandey, aschool teacher and Sahara
agent in Uttar Pradesh, echoing an argument made by Sahara after the
court verdict.
The company did not respond to several attempts by Reuters to get
answers to written questions. Roy was not immediately available to be
interviewed, Sahara said.
Sahara has not said how it will refund the money to investors,
although it has said it is healthy and investors need not worry.
ALL IN THE FAMILY
The companys full name is Sahara India Pariwar, or family. Roy, 64,
refers to himself as the guardian of the worlds largest family, and
espouses a philosophy of "collective materialism".
At its headquarters in Lucknow, staff greet visitors by putting their
right hand to their chest and saying "Sahara Pranam".
Roy, often photographed wearing a black necktie and vest over a white
shirt, is based nearby at the showpiece Sahara Shaher, a sprawling
gated complex of low white buildings and lawns where he lives and
where the group holds an annual mass wedding for 101 couples who could
otherwise not afford it.
Starting with capital of ~2,000 in the late 1970s, Roy built Sahara
into a giant that, according to its website, had assets of more than
$21 billion as of April 2011.
Roy is often described as a billionaire but he is not on the Forbes
list of rich Indians. Saharas website says no dividend has been paid
for 34 years and no profit has been taken out of the company.
Sahara has become a cashed-up global investor in hotels, sports and
entertainment.
Last year, Roy teamed up with liquor baron Vijay Mallya of Kingfisher
beer fame, paying $100 million for 42.5 per cent of his Force India
Formula One auto racing team. It paid $370 million for a franchise in
crickets Indian Premier League.
In 2010, Sahara considered buying English Premier League soccer club
Liverpool and held talks to buy the debt of film studio
Metro-Goldwyn-Mayer. Neither deal happened.
Still, Roy is not typically bracketed with a corporate elite led by
Indian families such as the Tatas, Birlas and Ambanis.
"If you look at the orthodox business community, they have kept him at
arm's length," said Ashok Prasad, a physician, lawyer and academic who
taught overseas before returning to Gorakhpur, the Uttar Pradesh where
Roy started out.
Instead, Roy is associated with Bollywood celebrities and, like many
tycoons, is seen as having good political connections.
(To be concluded)
Subrata Roy, founder and chairman of the Sahara India conglomerate
PHOTO: REUTERS
--
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CS A RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
Company Secretary, Chennai
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