[aaykarbhavan] Business standard updates 8-1-2013

Final norms on new bank licences soon, says RBI

BS REPORTER Mumbai, 7 January The Reserve Bank of India ( RBI) today said it would issue the final guidelines on new banking licences soon. " We are trying to bring them out as soon as possible," said Anand Sinha, deputy governor, RBI. He, however, declined to give any time frame for this. Market participants expect the guidelines to be released before the third quarterly review of monetary policy on January 29. He declined to comment on whether RBI would be giving banking licences to corporate houses. " We have issued draft guidelines. I can't say anything beyond that," he said. He was speaking on the sidelines of a discussion on the draft norms for non- banking financial companies (NBFC) released by RBI. These norms were based on the Usha Thorat committee report on the sector. The discussion was organised by the Finance Industry Development Council ( FIDC), an umbrella body of NBFCs. NBFCs said they felt the draft norms were very difficult to comply with and have requested these be relaxed. FIDC has requested RBI to provide tax benefits, access to asset restructuring companies, etc, before the final norms are place. Unlike banks, NBFCs don't get any tax benefit on their provisioning book. Also, they aren't permitted to restructure their assets. Any restructuring would lead to the assets being recognised as non- performing, according to extant regulations. Sinha said the central bank would look into the concerns raised by NBFCs. He, however, added nothing could be assured and advised NBFCs " to live with it". He said there was no question of treating NBFCs on a par with banks, as banks had more stringent regulatory norms. Key norms for NBFCs include higher tier- 1 capital, recognising NPAs in 90 days, against the current 180 days, and increased risk weight for sensitive sectors such as real estate. Sinha said the norms were in line with global norms and India, as a G- 20 nation, was obliged to follow other such nations. Global norms stipulate regulators to reduce the gap between capital adequacy ratios of banks and NBFCs. Many small NBFCs fear they would be out of business if RBI, in its final norms, continues the stance of deregistration below an asset size of ₹ 25 crore. Sinha said small NBFCs need not fear deregistration. RBI Deputy Governor Anand Sinha

 

Excise dept expedites recovery process BS REPORTER New Delhi, 7 January Tax assessees who have appealed against the excise department's tax demand but have not got a stay order from the appellate authorities concerned within a month may now face recovery proceedings. According to a recent circular by the Central Board of Excise and Customs ( CBEC), the excise department can initiate recovery process 30 days after an assessee files an appeal along with a stay application, if no stay is granted or after the disposal of the stay petition, whichever is earlier. According to experts, the earlier circulars, which have now been superseded, had a time limit of six months in case of stay application. The new rules will come into play in case of appeal lying before the Commissioner (Appeals) or the Custom Excise &Service Tax Appellate Tribunal (Cestat). The move has drawn flak from tax experts. Bipin Sapra, tax partner, Ernst & Young, said assessees do not have control over the timing of the tribunal or court order on their stay petition. So, if a person has filed a stay application, his recovery process should start after the order comes, said Sapra. He added that it usually takes three to six months for the appellate authority to issue an order on stay of recovery process. " The circular will cause administrative issues for the tax payers who have filed appeal and stay application but have not received any order. Since the tax payers have no control over the tribunal/ courts to decide their stay petition within a given time, the initiation of recovery proceedings would create hardship to the tax payers," said Sapra. According to the CBEC circular, in case no appeal is filed or an appeal is filed without a stay application, recovery process could be initiated after 60 days -the time given to assessees to file the applications. The circular said, " A confirmed demand remains an order in operation till it is stayed. Mere preferment of appeal itself does not operate as a stay." CBEC also quoted a 1994 Supreme Court ruling that " mere filing of an Appeal does not operate as a stay or suspension of the Order appealed against". Rule to be enforced even if stay order is pending; tax experts criticise move Top EPFO officials face action BS REPORTER & PTI New Delhi, 7 January Days after retirement fund body Employees' Provident Fund Organisation ( EPFO) issued guidelines to stop its officials from striking deals with employers on the provident fund they ought to pay, top EPFO officials in Andhra Pradesh are facing action. Last week, the Ministry of Labour and Employment suspended the second in command in EPFO's Hyderabad office. EPFO officials said that this was an old case and not the result of the guidelines, which asked PF officials to stop accepting payments of provident fund in bulk on the basis of negotiations rather than in the name of each worker. But the suspension of P Sudhakar Babu, the second senior most officer in EPFO in a ₹ 72- crore PF scam related to Andhra Pradesh- based Chaitanya Group of Educational Institutions, is seen as a sign of more such actions in future. The case was being investigated by the Central Bureau of Investigation's ( CBI) AntiCorruption Bureau, Hyderabad, which requested for his suspension. Government likely to amend controversial tax rules next month REUTERS New Delhi, 7 January The Indian government is likely to approach parliament next month to water down retrospective tax rules that damaged investor confidence, two finance ministry officials said on Monday, a move that might help settle British- based Vodafone Group Plc's longrunnning $2- billion tax dispute. Vodafone, the largest overseas corporate investor in India, has repeatedly clashed with Indian authorities over taxes since it bought Hutchison Whampoa's local mobile business in 2007. The government was heavily criticised by the corporate sector for introducing the tough tax rules last year at a time India was suffering a sharp economic slowdown and trying to encourage investment. Finance Minister PChidambaram has for several months been considering recommendations by a government panel that said past mergers and acquisitions should not be taxed. Vodafone, the world's biggest mobile operator by revenue, said in a statement last week that it had received a reminder from Indian tax authorities on the disputed tax dues, adding it believed that no tax was payable on the deal. "( The) Finance Minister is likely to approach the parliament next month on the retrospective issue," said a senior finance ministry official, who asked not to be identified because of the sensitivity of the issue. He declined to say whether the government was considering awaiver of the entire tax bill or cancelling interest and penalty charges on the original tax demand. However, the officials said Chidambaram was likely to introduce amendments in the 2013 Finance Bill to revise the amendments that were introduced last year along with the budget. Then Finance Minister Pranab Mukherjee introduced an amendment enabling authorities to make retrospective tax claims on long- concluded corporate deals after the Supreme Court had quashed the government's tax demand on Vodafone. Government likely to water down retrospective tax rules to settle down Vodafone's $ 2- billion tax dispute PHOTO: BLOOMBERG   Supreme Court to review Sahara refund order today BS REPORTER New Delhi, 7 January An August 31, 2012 judgement by the Supreme Court against Sahara India Real Estate Corp and Sahara Housing Invest Corp is likely to come up for review on Tuesday. The review petition was mentioned before Justice K S Radhakrishnan today. A Sahara lawyer declined comment. A bench comprising Radhakrishnan and J S Khehar had ordered the two companies to refund over ₹ 24,029 crore raised by issue of Optionally Fully Convertible Debentures ( OFCD) along with an interest of 15 per cent per annum. The firms were to submit the amount and the necessary supporting documents to Sebi within 10 days of the order. The regulator was to complete the refunds by November 30. Since Sahara did not submit the necessary documents, Sebi filed a contempt petition with the Supreme court. On November 30, Sahara moved the Supreme Court seeking to submit a sum of ₹ 5,120 crore. Sebi was not keen to accept this sum as it was just a fraction of the amount due when the case was decided. A bench headed by the Chief Justice directed Sebi to accept the deposit. It also directed Sahara to submit the remaining sum in two installments. The first installment was due on January 5. The Sahara group is now claiming that it does not need to pay anything more as it has only ₹ 2,620 crore outstanding to OFCD investors. It says that the additional ₹ 2,500 crore is a buffer to cover any potential dispute or discrepancies in this calculation. Sahara is also said to have filed an affidavit explaining the calculations along in support of the review petition. Proposed cap on audits divides community NSUNDARESHA SUBRAMANIAN New Delhi, 7 January The Companies Bill proposal to cap the number of companies that can be audited by a firm at 20 has led to a vertical split in the audit community. While the bigger players want the scope of the provision to be restricted to public companies, the smaller ones are in favour of the cap. The Bill has been passed in the Lok Sabha and there is a hectic activity in the capital's power corridors as lobbying picks up ahead of the tabling of the Bill in the Rajya Sabha. The Upper House is likely to take up the Bill for passage in the coming Budget session. Statutory audit of top- listed companies is dominated by the ' Big Four' — KPMG, PricewaterhouseCoopers (PWC), Deloitte and Ernst and Young — and their affiliates. According to informal estimates, these firms enjoy a 55 per cent market share in the audit of listed companies' business. One of these entities has even written to government, saying the capping clause will cause confusion as there are not enough qualified auditors to handle the volumes. " They have also been talking to members of Parliament, ministers and are expressing their concerns on this move," said an official closely associated with the matter, requesting anonymity. In a recent conference in Delhi on the Companies Bill, PWC partner Harinderjit Singh also expressed his reservations against the move and its potential impact on the quality of audits. Said N Venkatram, partner at Deloitte Haskins & Sells: " It's not a Big Four vs Little Four issue. The limited point that is being made is that private limited companies should be excluded from the calculation of 20 companies. The earlier law excluded private limited companies. If you include the private companies, then just putting an arithmetic limit won't work. Then there should be a financial limit," However, auditors running smaller firms say the move will create more opportunities for chartered accountants and help them earn better fees. "Today, I pay ₹ 3,000 for audit of my company. Once the supply gets restricted, price curve shifts upwards. It may become ₹ 20,000," said the managing director of a small company, who also did not want to be named. Another issue pointed out by the Big Four is the fact that several large companies have numerous subsidiaries. For example, if the 20 company rule is applied directly, then a firm may not even be able to cover more than one large company and its subsidiaries. "Say a company has 400 subsidiaries, why does the same audit firm have to audit all of them. Twenty different small firms can do the audit for subsidiaries and the big firm can consolidate. I don't see any problem in this," said the managing director of a boutique consultancy, also on condition of anonymity. There is enough talent in India to cover the demand several times. The auditors point out the data in the ministry of corporate affairs annual report that there are about 1.06 million companies registered in India. Of these, 705,699 companies were active. If the 20 company rule is applied, over 35,000 auditors will be required. Supporters of the Bill provisions point out that there are about 98,863 practicing chartered accountants, providing a coverage of 2.8 times to the Bill requirements. "We are not talking about sole proprietorships. Do we have enough number of firms who can handle large audits? We may not have more than 300 such firms," Deloitte's Venkatram said. Amarjit Chopra, a chartered accountant and former president of the Institute of Chartered Accountants of India, said the changes in company law were in the right direction. " Nowhere in the world there are rules which are against the local practitioners. It's unfortunate that whenever there is a foreign collaborator, they want one of the Big Four to be the auditor. Such clauses are restrictive." Chopra also pointed out that even some public financial institutions had started asking for a Big Four auditor. "How will the local talent grow under such restrictive environment?" he asked. Added Pavan Kumar Vijay, managing director of Corporate Professionals: " The new Companies Bill provisions provide a golden opportunity for Indian chartered accountants. They have to learn the art of building mega firms with specialists to provide different solutions." While smaller firms support proposal in the Companies Bill, Big Four is said to be against a blanket cap AN ACCOUNT OF ACCOUNTANTS No. of companies* 10,66,102 Active companies 7,05,699 Number of CAs required 35,285 No. of members in full- time practice 98,863 Coverage of requirement to availability 2.80 times Source: MCA, ICAI * According to MCA annual report 2011- 12

 

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CS A  RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
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