| Auto, logistics firms to reap rich dividend |
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Mumbai, 18 December The Narendra Modi government's plan to introduce the goods and services tax ( GST) will allow the automobiles, logistics and entertainment sectors to reap a rich dividend from the rollout targeted for next year. But for petroleum, the wait will be longer as it is not been included in the GST framework. The GST Bill is expected to be tabled by the government in Parliament after the Cabinet cleared it on Wednesday. Analysts and corporate tax experts said under the GST, the cumulative duty rates on large cars and sports utility vehicles would fall from 41- 41 per cent to 20- 24 per cent, making these the biggest beneficiaries of the rollout. For some segments of the automobile industry like tractors, which are exempted from excise duty but pay four per cent value added tax, the GST rate will increase to 12 per cent. Overall, Mahindra & Mahindra would be a beneficiary because the company earned 25 per cent of its revenue from sports utility vehicles, analysts said. Other big beneficiaries would be logistics companies. A complicated tax regime coupled with poor infrastructure has led to high logistics costs in India at around 14 per cent of the total value of goods against seven to eight per cent in developed countries. The GST regime will make sure that companies consolidate their warehouses into four or five big ones rather than keeping one in every state to save on central sales tax (CST). The retail industry will gain too. " The rollout of GST will help free movement of goods across states. Since tax paid in a previous state is treated as input credit, it will allow us to reach out anywhere in the country without a tax burden. It will bring in more efficiency and reduce prices for customers," said Rakesh Biyani, joint managing director, Future Retail. "There will be major savings in transport costs for companies, which will directly improve profitability. Today, the time taken at various check posts adds to cost at every stage. Losers will be those industries that are out of the purview, which appear to be petrol, tobacco and alcohol," said DR Dogra, MD & CEO of CARE Rating. Besides, experts said industries like food products and processing and fast- moving consumer goods should be better off as they currently faced multiple taxes. Electrical and chemical product companies, too, could see an improvement in profit. Harsh Mariwala, chairman of Marico, said the big stakeholders in the GST rollout were not only the government, but consumers and industry also. "If rates are high, these will lead to inflation, which would be detrimental to consumers. When the empowered committee met a month ago, it had suggested a revenue- neutral rate of 27 per cent. It should ideally be below 20 per cent. Earlier studies had suggested that it should be between 12 and 16 per cent if goods have to be competitively priced and there is to be no inflationary pressure. So as long as these issues are not sorted out, the GST will not achieve its objective," he said. Automobiles, pharmaceuticals and consumer products companies enjoy tax benefits by setting up manufacturing units in states that offer incentives like excise, VAT and income tax concessions. Many fast- moving consumer goods companies, especially in food products, enjoy rates of zero to six per cent versus the current excise rate of 12 per cent. If the GST rates go up, they will increase costs and the companies will pass them on to consumers. Adi Godrej, chairman, Godrej Group, said the GST would add two per cent to gross domestic product growth and it was good that the Centre and states had come to terms on the issue. " Though there have been afew compromises. For instance, petroleum products have been exempted for now. So is alcohol. Once all the items are included, the full impact of the GST will be felt. But there is no denying how critical this development is. We are better off getting started with this (GST) rather than delaying it," he said. Corporate lawyer Sumit Lunker of BDO India said the entertainment and telecom sectors would be big beneficiaries as the GST would eliminate amultiplicity of taxes– entertainment tax, luxury tax, VAT and service tax– and end classification disputes on software, SIM cards, franchise fees, and annual maintenance contracts for telecom companies. (Inputs from K Raghavendra Kamath) Manufacturing and retail sector Positive impact |Increased fungibility of credit on goods and services |Full credit of tax on interstate sale will reduce cost of procurement/ production |No retention/ disallowance on stock transfer of goods will also reduce cost procurement |Credit of import duties will make imports cheaper for retailers. Thus, all imported consumer goods will benefit |Today, entry tax is a cost in most cases, along with additional compliance burden. With GST, entry tax and its ills will be eliminated Negative impact |Negative working capital impact |Increase in initial cost of purchases including Imports due to an increase in tax rate |Job work transactions and stock transfers, currently no taxed, are likely to be taxed and will effect production outlay |Increase in cost of procurement of services from 12% to more than 20% |Fate of area- based exemptions unknown Entertainment and hospitality |Eliminates multiplicity of taxes –Entertainment tax, luxury Tax, VAT, service Tax |By allowing credit between goods and services, GST will prevent cascading of taxes, resulting in increased profits for companies in this sector |Simplifies levy and valuation on composite transactions. Thus, will reduce litigation challenges and related costs faced by companies in this sector IT & telecom |End to classification disputes on software, SIM cards, franchise fees, AMCs, etc |Simplifies levy and valuation on composite transactions by eliminating multiplicity of taxes- VAT, service tax, entry tax Service sector |Better credits across goods and services |No segregation between manufacture, services and trading for utilisation of credits Infrastructure & real estate |Simplifies levy and valuation on composite transactions by eliminating multiplicity of taxes- VAT, service tax, Entry Tax |Increase in total tax incidence on certain products under the GST regime such as cement and steel |Composite contracts likely to be treated as ' services' under the GST regime |SEZ benefits to continue – supplies to SEZ to be zero rated |Real estate development transactions –no way forward provided yet |Stamp duty may continue to apply Banking, financial services and insurance |Cost of banking and insurance will increase with rise in tax rate from 12.36% to more than 20% |Better credits across goods and services |Increase in credit pool due to availability of GST credits on purchase of goods |Interest on loans expected to be taxed under GST Source: BDO India LLP IN A NUTSHELL: GST IMPACT |
| In a first, Sebi sends someone to jail |
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Mumbai, 18 December The Securities and Exchange Board of India (Sebi) has sent 58- year old Vinod Hingorani to jail for defaulting on the payment of a penalty. This is the first time the regulator has sent an individual to jail, after being empowered to do so in August this year. "We might have detained someone in our office once or twice. But this is the first time we are sending a person to jail. He has already been taken to prison," said a Sebi official. The Sebi order was passed in a case involving Adam Comsof India and Kolar Biotech Ltd. The case relates to advertisements about a bonus for shareholders of Kolar Biotech, as well as about a global depository receipt issue of the company, according to a Sebi order passed in 2010. Following the advertisement, asubsequent increase in share prices was used to unload stake by a group of entities linked to Raj Kumar C Basanti, the company's primary promoter. Adam Comsof, also mentioned in Thursday's order, was a related entity. Though Sebi had imposed a penalty in the case, it had been unable to recover the dues for about four years. "The dues of the defaulter are more than ₹ 1.64 crore and the fraudulent activities of the defaulter in various capacities in the aforesaid companies have resulted in a number of innocent investors in the securities market suffering. Therefore, I order the civil imprisonment for a maximum of six months," said the Sebi order, signed by D V Sekhar, the regulator's deputy general manager and recovery officer. "Take Vinod Hingaroni to prison and keep him imprisoned for a maximum period of six months or until the amount aforesaid, together with further interest, is paid or until an order of release is received from the undersigned," the Securities and Exchange Board of India order said. Hingorani had stated he was non- executive chairman of Adam Comsof and Kolar Biotech and that he had no role in the matter. Hingorani was said to have been detained at the Sebi office, before being taken to prison. The Sebi official quoted earlier said Hingorani could appeal against the order in the Securities Appellate Tribunal. Sandeep Parekh, founder of Finsec Law Advisors, said Sebi could issue similar orders against more entities that had defaulted on dues. "It's a very unique order. It's rare anywhere in the world for a regulator to issue an arrest order without intervention from courts," he said. In August, the Securities Laws (Amendment) Act, 2014, gave Sebi additional powers, including to order the arrest of violators and seek call data records of individuals under investigation. In August, the Securities Laws (Amendment) Act, 2014, gave Sebi additional powers, including to order the arrest of violators and seek call data records of individuals under investigation Hingorani was said to have been detained at the Sebi office, before being taken to prison. The Sebi official quoted earlier said Hingorani could appeal against the order in the Securities Appellate Tribunal |
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