| The IT anchor for smooth GST implementation |
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Bangalore/ Mumbai, 30 January Even as the government is busy removing the hurdles before implementation of the proposed Goods and Services Tax (GST), the process for building a robust technology platform for it has started. While the final GST roll- out is expected by 2015, both Centre and states have been running projects for two years to understand what is needed in a robust information technology ( IT) system. "All the preparatory works have been done and once the law is ready and they ( the government) give the go- ahead, then the detailed planning can be done and all this can happen very fast," said highly- placed sources involved in the development of the IT platform. Earlier, the ministry of finance, with concurrence of the Empowered Committee of State Finance Ministers, had set up an Empowered Group on IT Infrastructure for GST, headed by Nandan Nilekani, chairman of the Unique Identification Authority of India. Based on its recommendation, the Mumbai- based National Securities Depository Ltd ( NSDL) was mandated to incubate the prototype of a GST Network ( GSTN) common portal, to work as a main interface at the central level. A central GST portal operated by GSTN has been set up as part of the pilot run. The project, done by NSDL in 11 states to study the robustness of systems and processes, has found it to be quite successful. The common GST portal is simply a pass- through device. The taxpayer files the return with GSTN, which keeps a copy of the return for analysis, and then sends it in near real- time to the respective state and to the Central Board of Excise and Customs. The taxpayer pays the actual duty in the bank, which uploads only the challan details into the GSTN. Actual funds never pass through the GSTN. One objective of the system would be to close the leakages and fraud in tax collection. "The GST will provide some sense of commonality in the law. One way to look at is if you don't do this, then the dealer will have to register himself with each state separately, will have to pay the taxes of each state separately and will also have to file his returns of each state separately," said Neel Ratan, executive director at PricewaterhouseCoopers (PwC). "IT can play a huge role in providing a unified common system, wherein while the jurisdiction of the states would remain, information can be collected centrally and distributed to all the states and the central government," he added. The main task before the government before actual GST roll- out will be to computerise the commercial tax departments in all states. " Unless this is done, you will find GST very difficult to implement," said Raghu Cavale, vice- president and head of India business, Infosys. Many states have already started the process of automating their commercial tax departments. Tata Consultancy Services (TCS), for example, is working with 11 states to automate their commercial tax collection. "Once GST is introduced, all the states would have to quickly gear- up to get into the GST regime by taking their IT infrastructure and applications up and running," said Tanmoy Chakrabarty, VP & global head, government industry solutions unit, at TCS. "It's because there are intricate linkages between the central government and the state governments under a GST regime. If you are not able to correlate one level with the other, then there will be a break in linkage and data flow and that will affect GST computation," he added. According to the IT strategy for GST reporting, there has been a consensus on a common portal providing three core services — registration, returns and payments. GST will be a dual tax, with both the central and state component levied on the same base. The integrated GST framework will be used for goods and services exported across state boundaries. Thus, all goods and services, barring a few exceptions, would be brought into the GST base. |
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| India Inc seeks CSR road map | ||||
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said. BS REPORTER | ||||
| Green signal for GST | ||||
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The Centre has reportedly agreed, instead of fixing a uniform GST rate across the country, to set a floor rate for the tax, with a narrow band within which states will retain their right to control local taxes. The principle of fiscal federalism has been respected to the degree that states will be allowed to opt out later, if they so desire. Most importantly, as had happened with the introduction of the state value- added tax, the roll- out of the GST will be in a phased manner. States eager to enter the GST framework can do so immediately; once a demonstration effect is established, others will no doubt join. This was a crucial innovation to the GST framework that should have been applied much earlier. If it had, it would have speeded up the negotiations considerably. The GST is not a magic bullet for enhancing government revenue. However, the point behind the GST remains that it is supposed to ease compliance and transparency. If so, then coverage will increase and evasion will decline. States will also be able to tax services, bringing India's tax system into the 21st century. Questions, however, still remain. First, has the UPA, known to be dilatory and inefficient when it comes to administrative reform, moved quickly enough to build the backbone required to make GST payments easy and transparent? This cannot be allowed to wait for a full political consensus to form. Second, is whatever agreement the Centre has hammered out with states robust enough, leaving enough on the table for both parties – New Delhi and state capitals – to feel that they can go ahead with it, even if the political discourse turns even more fraught as general elections draw closer? While the final implementation might be left till after the 2014 elections, the new framework should already be ready, in principle and in effect, by then. Finally, the biggest question of all will still remain open. Are the compromises that the Centre has finally made to freshly empowered and emboldened state governments so deep and wide that the GST itself loses much of its meaning, and its power? An answer to that question will have to wait until the tax goes into effect. Till that point, it is worth mentioning that the design of the GST has been too long delayed and, as with some other recent acts of the UPA government, should have been put into place a long time ago. The contours of any agreement were well known for some time — state governments would not have unilaterally given up all power over taxation, nor does the UPA have the political strength to force them to do so. The UPA must now move forward to make the transition to the new tax scheme clearer and easy for state administrations to adopt. Centre must move forward, and give states their due Volume XVII Number 146 MUMBAI | THURSDAY, 31 JANUARY 2013 | ||||
| New Companies Bill fuels royalty rush | ||||
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Mumbai/ New Delhi, 30 January The proposed changes in the Companies Bill, 2012, has led to a rush among companies to increase royalty payments to their foreign parents. Under the new Bill, if approved, promoters will have to take approval of 75 per cent of the non- promoter shareholders on any such proposal. The new regulations will make it harder for the promoters to charge such fees from the company as royalty payments or technology transfer fee, say legal experts. The most recent examples of companies that have planned to raise royalty fee to their parent are Gujarat Ambuja, ACC and Hindustan Unilever Ltd (HUL). Gujarat Ambuja and ACC will pay one per cent royalty against the current 0.5 per cent to Swiss cement major Holcim for providing technology know- how. HUL has more than doubled the royalty to the Anglo– Dutch multinational consumer goods parent, Unilever, to 3.5 per cent. The new Companies Bill, passed by the Lok Sabha and pending approval of the Rajya Sabha, has tightened the norms for related party transactions, such as introducing the requirement of a special resolution to be passed in favour of the transaction by shareholders. If the resolution pertains to a transaction with a shareholder, such entity or entities with an interest in the outcome have to abstain from voting. Effectively, it means issues like royalty payments cannot be decided by a resolution passed with the support of promoters alone and companies will require a majority consent from minority stakeholders, too. While this proposal empowers shareholders, an exception has been carved out. If the transaction is in the ordinary course of the business and is at an arms length, no such resolution is required. The term ' arms length' has been defined in the Bill to mean a transaction between related parties, conducted as if they were unrelated so that there is no conflict of interest. Legal experts say cases like that of Gujarat Ambuja, ACC and HUL would fall under the category of related party transactions and might not be able to take the benefit of the exception. "Since Holcim is the holding company of ACC and Ambuja, any transaction between them would be considered a related party transaction," said proxy advisory firm SES. SES believes the size of both ACC and Ambuja are sufficiently large and it is most likely that these companies would be covered and be required to comply with the provisions. Manoj Kumar, assistant vicepresident, Corporate Professionals, said, " In the new Bill, they have inserted a clause where related party transactions beyond a limit, which will be prescribed in the rules, will require shareholder approval. Further, the concept paper issued by Sebi recently on the corporate governance framework also prescribes stringent conditions in this regard. Both regulations are likely to take effect simultaneously. That is probably the reason behind the rush." Through Holcim ( India) Pvt Ltd and Holderind Investments Ltd, Holcim holds 50.3 per cent stake in ACC and 50.6 per cent in Ambuja Cements. The company stated it had decided to seek members' approval in this regard by way of good corporate governance practices. However, instead of moving a special resolution (as mandated by the soon- to- be- implemented Bill), the companies have moved an ordinary resolution. "An ordinary resolution requires only majority approval. Holcim has sufficient shareholding at both companies to approve an ordinary resolution, even if all other shareholders vote against. Therefore, by proposing it as an ordinary resolution and stating that even though the matter is within the powers of the board, the same is being done as ameasure of good corporate governance, the promoters are doing so only on paper and not in spirit," said J N Gupta, founder director of SES and former executive director at the Securities and Exchange Board of India. Turn to TSI, Page 2 > Ensuing legislation would make approval for a higher payment to foreign parent tougher; many in a hurry to beat it PAYOUTS OF CONTENTION In the recentpast, manyMNCs have raised royaltypayments from local arms Company Royalty as % of sales ( 2012) Company Royalty as % of sales ( 2012) Maruti Suzuki 5.20 Colgate Palmolive ( India) 5.14 ABB 5.03 Procter & Gamble 4.70 Voith Paper Fabrics India 4.35 Nestle India 4.21 Timken India 2.50 Alstom T& D India 1.74 Bosch India 1.58 Hindustan Unilever 1.40 Whirlpool India 1.34 Asahi India Glass 1.21 BASF India 0.87 3M India 0.85 ACC 0.50 Ambuja Cements 0.50
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| Sebi settles case against Suzlon through consent | ||||
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Mumbai, 30 January Market regulator Securities and Exchange Board of India ( Sebi) has disposed a case against Suzlon Energy and its officials, including Chairman Tulsi Tanti, for alleged violation of the Prohibition of Insider Trading ( PIT) Regulations through the consent route. Sebi disposed of the adjudication proceedings against Suzlon and five of its officials on payment of ₹ 2,00,000 each towards settlement charges. The regulator had launched adjudication proceedings against Suzlon after an investigation revealed it had unduly delayed the implementation of the ' code of internal procedures and conduct for prevention of insider trading' and also failed to incorporate a mechanism for pre- clearance of trades as mandated under the PIT regulations. The investigation regarding various price- sensitive disclosures made by Suzlon was conducted between November 2009 and December 2009. "During the investigation it was observed that the applicant had amended its code of internal procedures and conduct for prevention of insider trading for listed companies in line with amendments in Sebi ( Prohibition of Insider Trading) Regulations, 1992 notified on November 19, 2008 only on February 4, 2011, after a delay of more than two years," the regulator said in an order. Turn to TSI, Page 2 >
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| Delhi HC sets aside CIC order in RIL insider trading case | ||||
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New Delhi/ Mumbai, 30 January The Delhi High Court today set aside a November 6 order passed by the Chief Information Commission ( CIC) directing capital market regulator Securities and Exchange Board of India ( Sebi) to disclose information in the 2007 Reliance Industries Ltd ( RIL) insider trading case. The order was set aside on the grounds that the CIC did not give RIL an opportunity to present its case before passing the impugned order. The court remanded the case back to the commission directing it to issue notices to both RIL and petitioner Arun Agarwal. At the request of Agarwal's petitioner, the court also clarified that it is not taking any call on the merits of the order and the decision to set aside the order is only on the grounds that an opportunity was not given to RIL. The move is a shot in the arm for RIL, which had last week sought to defer proceedings in the Bombay High Court on the same matter citing today's hearing in the Delhi High Court. RIL counsel Abhishek Manu Singhvi, said the CIC order ignored several key issues and that the company was not given an opportunity to be heard and this was against the principles of natural justice. The impugned order was passed by the CIC on an appeal by Bangalore- based lawyer Arun Agarwal under the Right to Information Act. Agarwal had sought from Sebi details including the investigation reports and identities of entities that helped RIL offload over four per cent stake in subsidiary Reliance Petroleum in November 2007. While Sebi had refused to share the details saying the investigations were not complete, CIC had directed it to disclose the details saying it was in ' public interest'. Explaining the rationale for this decision, CIC had said: " If as a regulator, the Sebi took cognisance of allegations of any breach of law, rules or regulations by one or more entities for unlawful private gain, the information generated in the process of its investigation needs to be disclosed in the public domain. Such disclosure would keep the general public informed and educated about the risks they may confront in making investments in the market. It would also prevent many entities from adopting shortcuts to make profit through unlawful means." While RIL had got a stay on the order in the Delhi High Court in the matter, Sebi had challenged the order in the Bombay High Court. RIL was made a party in the latter case also. On RIL's request, the Bombay High Court had agreed to postpone the hearing till the Delhi High Court decision. However, earlier this month, Sebi by its own will put out the names of 12 entities that helped RIL in the 2007 RPL transaction. The order was set aside on the grounds that the CIC did not give RIL an opportunity to present its case before passing the impugned order |
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Company Secretary, Chennai
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