Dispute over fuel, alcohol inclusion in Gst hit talks
VRISHTI BENIWAL
Shillong, 18 November
Talks between the Centre and state governments over the proposed Goods
& Services Tax (GST) almost collapsed here on Monday. States
unanimously refused to subsume petroleum and alcohol in the proposed
tax regime, cautioning the Centre to take no move affecting their
fiscal autonomy. With this, the possibility of a Constitution
Amendment Bill on the GST changes coming up in Parliament in the
current tenure of the UPA government appears to have become remote.
In fact, differences between the Union government and the states over
the draft Constitution amendment have widened further. States have
strongly voiced their opinion on keeping entry tax in the indirect tax
regime and on the absence of a permanent mechanism to compensate them
for revenue loss from GST.
"India is a federation. Nothing should go in the Bill that is against
the spirit of cooperative federalism," said Abdul Rahim Rather,
chairman of the Empowered Committee ( EC) of State Finance Ministers.
Rather, also finance minister of Jammu & Kashmir, spoke to reporters
after the meeting on Monday.
The EC told the Centre that for a GST to take off, a provision should
be made in the proposed Constitution amendment legislation on
compensation from losses due to a shift to GST. Parliaments standing
committee on finance had suggested providing for a GST Compensation
Fund in the Constitutional amendment to address the revenue concerns
of states; the Centre didn't do so in the draft Bill.
Besides, states have opposed the powers proposed to be vested with the
Centre to declare any goods as being of special importance and so,
deny states the power to impose a duty on the goods concerned over a
stipulated rate. " The government should not have ( this) power...
Entry tax in lieu of octroi should not be subsumed, in order to
protect the interests of local bodies," Rather added. With the states
hardening their stance ahead of the legislative assembly polls and
general elections, chances of the Centre tabling the Bill to amend the
Constitution in the winter session of Parliament are dim.
Some governments are worried that agreeing for a GST before going to
the polls could go against their interest.
"Such big taxation issues can never be taken up before the elections.
No state wants to block its chances of coming back to power after
favouring GST. It is more of a political decision now," said a state
government official. He said some states had made it clear that it
would not be appropriate for an outgoing government to take a policy
decision of this magnitude.
Tamil Nadu's finance minister, B V Ramana, in a written speech, said
the Constitution amendment was the Union government's endeavour to
"bulldoze and, thus, encroach upon the powers vested with the states".
Gujarat and Madhya Pradesh ( also ruled by non- Congress parties) had
similar views. The states also brought up the issue of compensation
for revenue losses due to earlier cuts in Central Sales Tax ( CST)
rates and questioned the Union's intent in not providing for this even
after making a formal provision in its budge for the year. Rather has
written to Union finance minister P Chidambaram in this regard. The
government had made a provision of ₹ 9,000 crore for CST compensation
in the Union budget but has not given anything yet to the states. With
a high fiscal deficit and the tough stance taken by the states on GST,
there are indications that the amount might not be disbursed to the
states.
The states' stand has foiled the UPA government's plan to at least
make a beginning on GST by getting the Constitution amendment cleared.
Earlier this year, then EC chairman Sushil Modi had said a broad
consensus had been reached on 80 per cent of the issues. However,
asked whether the current government was committed to rolling out GST
soon, he had said, " This is an election year. So, you don't know to
what extent the government can take a decision in this regard." States
had earlier given in- principle approval to subsume entry tax in lieu
of octroi in GST and keeping petroleum outside the Constitution
amendment Bill, which meant it could be taxed, if needed. A U- turn
now could be attributed to a changing political scenario, officials
said.
Now, the only way out is that the Centre agrees to the recommendations
of the states. However, finance ministry officials, said the latter's
demands were against the principles of economics. GST, originally
scheduled to be rolled out from April 1, 2010, has already missed
several deadlines, due to differences between the states and the
Centre.
States harden stance at Shillong meet, burying hopes of Constitution
amendment before the coming general elections in 2014
The Goods and Services Tax ( GST) was originally scheduled to be
introduced from April 1, 2010. However, differences between the Centre
and states over the proposed Constitution amendment Bill has led to
persistent missing of the deadlines. The newtax regime might not come
even on April 1, 2014 owing to the upcoming Lok Sabha elections. Here
is a brief explanation of various issues on GST:
Why is a Constitution Amendment Bill required? GST will change the
existing framework of indirect taxation given in the Constitution.
According to the current arrangement, the Centre cannot impose atax
beyond manufacturing, because of which sales tax and value- added tax
( VAT) are imposed by states. On the other hand, states cannot impose
service tax. However, GST will require both the Centre and states to
levy taxes on the common pool of goods and services.
What is the mechanism of passing the Bill? The Bill requires a two-
third majority in each houses of Parliament to get passed. Besides,
ratification of at least half the states, besides Presidents assent,
is required to make the Bill a law.
Where is the Bill stuck? A standing committee of Parliament proposed
that taxes on alcohol and petroleum products be kept out of the Bill.
The Centre agreed, but proposed to keep these taxes under GST. Some
states do not concur with the view.
States oppose subsuming of entry tax into GST as well.
Will consensus on the Constitution Amendment Bill make GST
operational? No, because GST Bills have to be prepared. While the
Centre will come out with its own Bill, each state will have to get
its own Bills passed in their respective Assemblies. A committee is
working on a model GST Bill. That way, the Constitution Amendment Bill
is just an enabling legislation for GST. How will GST be different
from the current system of taxation? Currently, the Centre imposes
excise duty and service tax, while the states impose VAT and in some
cases sales tax. All these, more or less, would be subsumed in GST.
This would make India a kind of common market for taxation purposes.
However, the earlier proposal to have a common rate with states and
the Centre might undergo a change, as the states are insisting on a
band of taxes to give them flexibility. Customs duty will be out of
GST.
Are there any other differences between the Centre and states? Who
will have administrative control over tax assessees — the Centre or
states - is another contentious issue. Earlier, it was proposed that
traders with annual turnover of less than ₹ 1.5 crore could come under
the administrative control of states, while those above this limit or
involved in inter- state movement of goods should be controlled by
both the Centre and the states.
GST CONUNDRUM
Sebi move on FPI regime grounded
VRISHTI BENIWAL & NSUNDARESHA SUBRAMANIAN
New Delhi, 18 November
The Securities and Exchange Board of India (Sebi)' s move to harmonise
various modes of foreign investments into Indian markets has hit a
finance ministry road block.
At its board meeting in October, Sebi had approved the foreign
portfolio investors ( FPI) regime and announced the formulation of the
Sebi ( Foreign Portfolio Investors) Regulations, 2013. Earlier, the
regulator allowed foreign investments into stocks through its two-
decade old foreign institutional investors (FIIs) framework and the
qualified foreign investors ( QFI) mode. The new route was intended at
unifying these modes and doing away with stringent requirements such
as prior registration.
However, the Department of Revenue ( DoR), under the finance ministry,
which has to make corresponding changes in the taxation framework to
make the new regime operational, has put this on the back burner,
saying the changes need amendments in the Income Tax Act. " The
changes require an amendment in the law and that cannot happen now, as
the Budget in February will be an interim one. They (Sebi) will have
to continue with the existing regime until a full Budget is presented
in June- July," a finance ministry official told Business Standard,
on condition of anonymity. He added DoR had already informed Sebi
about the legal requirements and the fact that not much could be done
in this regard before the new government was in place.
The amendments in tax laws are crucial, as foreign investors and
intermediaries seek clarity in the taxation framework, as well as an
assurance that none of the benefits available under the current
framework will be taken away in the new regime.
Section 115AD, which deals with tax on income of FIIs, doesn't
recognise the term ' foreign though Sebi has notified was excluded in
the committee's final report, as tax matters were considered outside
the purview of Sebi. "Foreign investors invest points of returns. For
the sake of simplicity, they don't want to risk losing the bulk of
this to the tax guy," said an official at an intermediary that dealt
with foreign investors. Lack of clarity on tax issues had led to the
failure of the QFI regime, championed by the finance ministry until
last year.
The new norms, based on the recommendations of the KM Chandrasekhar
committee, said though existing FIIs and sub- accounts would continue
to operate under the FPI regime, QFIs would have to be registered as
FPIs within a year. To make entry norms easier, Sebi had also approved
doing away with the current practice of FIIs and their sub- accounts
requiring prior direct registration with the regulator to operate in
Indian markets.
The FPI regime was expected to lead to more investments from foreign
investors in India's capital markets.
In his Budget 2013- 14 speech, Finance Minister PChidambaram had said
Sebi would simplify procedures and prescribe uniform registration and
other norms for the entry of FPIs. He said the market regulator would
converge different know- your- customer norms and make it easier for
foreign investors such as central banks, sovereign wealth funds,
university funds and pension funds to invest in India.
Revenue dept says changes in I- T Act require Parliament nod; new
regime to wait till Budget in June- July 2014
|In October 2013, Sebi issued new norms for foreign investors |The
regulator brought FIIs & QFIs under a common framework foreign
portfolio investors |Investors not prepared to move to the new regime
without tax clarity |FinMin says change in law not possible before
general polls |Sebi, investors may have to continue with the existing
regime till July
Sebi asks firms to improve quality of disclosures
BS REPORTER
Mumbai, 18 November
The Securities and Exchange Board of India ( Sebi) has directed stock
exchanges to strengthen their surveillance system to ensure the
disclosure standard of listed companies is accurate and adequate.
The move is aimed at ensuring that complete and timely information
reaches investors, to enable them take informed decisions. Sebi feels
the disclosure standards for companies and the monitoring by exchanges
is not up to the mark.
"The contents of the disclosures made by such companies are not
adequate and accurate. Therefore, investors are unable to take
informed investment decisions based on such disclosures," Sebi said in
a circular on Monday. " The current monitoring mechanism of stock
exchanges to ascertain the adequacy and accuracy of disclosures made
in compliance with the Listing Agreement needs to be made more
effective." A listing agreement is a contract between a stock exchange
and a listed company. It comprises about 50 clauses —on corporate
governance and information- based disclosures such as filing of
results, shareholding data — which listed firms have to follow.
The market watchdog has asked exchanges to to set up separate
monitoring cells, with adequate personnel, to effectively monitor the
adequacy and accuracy of disclosures by listed companies. A framework
to detect non- compliance will also have to be set up.
At an event last week, U K Sinha, chairman, Sebi had expressed
displeasure over non- compliance of various clauses with the listing
agreement by a large number of listed companies.
"You will be perhaps shocked to know that today there are 1,100- plus
listed companies which are non- compliant for the requirement of
clause 35 of the listing agreement... and there are 900 companies
which are noncompliant on the requirement of corporate governance-
clause 49…. I am sure you will accept that this can't be allowed to go
on," he had said.
It has also asked exchanges to treat inadequacy and inaccuracy of
disclosure as noncompliance and file an ' exception report' with
details companies that dont respond on clarifications sought by
exchanges. Sebi has also asked exchanges to have details of promoters,
directors and other key personnel, responsible for ensuring compliance
at listed companies.
The regulator has also asked exchanges to enhance ' quality and
substantive' compliance of various clauses of the listing agreement.
For instance, exchanges will have to keep a tab on the various
developments of listed companies across media platforms and " ensure
that any important information has not been omitted to be disclosed by
the company."
Sebi has also asked bourses to treat inadequacy and inaccuracy of
disclosure as non- compliance
--
CS A Rengarajan
9381011200
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