Posts Tagged ‘service tax’

BUDGET PREVIEW 2011 – Final Part :)

Continuing The Final Part Of The Budget Preview 馃檪

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We believe that this year Finance Minister will take a gradual move towards fiscal consolidation by聽increase in Excise duty. Excise duty forms around 40% of Indirect Tax collections. Excise duty collections were聽down by 13% in April to December period to close to Rs. 70,000 crore comprising around 66% of Budgeted聽Estimates of Rs. 1,06,477 crore. The factors that contribute to our belief are; 馃榾

路Though the growth in corporate sales is not astonishing but profitability has improved to due to various聽cost control efforts which is quite evident by the corporate tax collection that have shown a growth of聽44% in December 2009. Cumulatively Net direct tax collections increased by 8.5 per cent during April-聽December 2009.

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路India being a consumption story has shown healthy growth in sales of consumer durables. For instance Automobile industry’s sales聽went up by 32 per cent in December over the same month in 2009. It is believed that a gradual hike in duty will get absorbed聽without affecting medium term prospects of the industry.

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路Partial rollback would also help the finance ministry effect a calibrated integration of excise duty with the services tax by the end聽of the next financial year, when the proposal for a Goods and Services Tax is likely to be implemented.

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路Finance Minister had indicated that he would like the fiscal deficit for 2010-11 to be around 5.5 per cent of GDP. The proposal to聽raise excise duty by two hundred basis points is being endorsed also to help the finance ministry raise more revenue and stick to聽the projected fiscal deficit target.

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Disinvestment would be the key focal point in the Budget. We believe that the Finance Minister would place high targets from the PSU sale proceeds. The factors that contribute to our belief are:

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路In order to bring Fiscal deficit under control that would subsequently ease upward pressure on interest rates.

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路This will help Investment in social sector projects which promote education, health care and employment & will also help in聽Capital investment.

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On the Corporate Tax front, we believe that the Finance Minster is unlikely to lower tax to 25% from the current 30% as per Industry demands. The rationale behind our belief is:

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路The direct tax code that proposes corporate tax to be 25% will be implemented in fiscal 2011 鈥 2012 & Industry have to wait till its聽implementation as it will replace the existing Income Tax act.

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路Already, government is trying to make up more tax revenue & is unlikely to take step in this direction as it may come as an聽obstacle in order to control fiscal deficit.

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On deregulation of Petroleum sector, we believe that in order to cut down on subsidies government could provide the road map for partial deregulation of the petroleum sector. The road map may provide OMC’s to review the prices of petrol and diesel on a聽regular basis however, LPG and kerosene could continue to be administered by the government. Factors that complement to our belief:

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路In view of the commitment of the UPA regime to flagship social security programmes聽that require huge allocations, Mr. Mukherjee has told Mr. Deora that it would not be聽possible to provide huge subsidies to the OMCs in future.

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On the External Economy side, we expect that the Finance Minister may continue to聽provide certain concessions like interest subsidy and extension of other export oriented聽schemes. The rationale to our belief:

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路In the recent two months i.e. November & December, merchandise exports registered a聽positive growth of 18.2% & 9.3% respectively. But in the period of April to December聽2009, the exports were still negative to the tune of 20% as compared to the聽corresponding period.

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路The world economic recovery especially in US & Europe is still questionable & the regions constitute approximately 15% & 21%聽respectively of our merchandise exports, thus directly affecting the trade.

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路Sectors such as engineering goods, jute, carpets, handicrafts and leather goods are continue to be in bad shape, others such as聽gems & jewelry drugs, plastics and petroleum products are showing improvement.

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路Concluding, the main point is that it may not be a good time to take back the stimulus so soon that may derail the recovery.

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Note : For More Latest Industry, Stock Market and Economy News and Updates, please聽click here

BUDGET PREVIEW 2011 – Part 1 :)

At last the much talked topic 鈥淏UDGET鈥 among AAM ADMI, CORPORATES or聽INVESTORS that comes to INDIA 鈥 is approaching. 鈥淭he million dollar question is that will 2010 budget be another year to cheer the聽economy by giving some relief in indirect taxes, personal income tax and by聽implementing various schemes to induce social & infrastructure sector in聽order to maintain high trajectory growth鈥.

Generally, it is seen that the聽incentives which are given in the period of recession or slow down and moreover,聽when the government in power is about to complete its tenure, are above from聽expectations. It is seen that budget in two years usually comes good when the聽Govt. is in the last year of power & in the first year of the rule as a vote of thanks.The mid three years out of the five year term usually remains tight on the聽policies.

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For the common man, we expect that Finance Minister may raise the exemption limit in personal income tax & investment聽limit Under Sec.80C. The reason to our belief:

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1. The rocketing prices of food articles like sugar, pulses and vegetables have been cutting the pockets of a middle class.

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2. By coming out with these measures (above mentioned) the government will lower the tax incidence on the common man & will聽also help it to put the opposition on backfoot.

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By & large everyone is aware of the level of fiscal deficits globally and many of us know that it is essential to minimize deficits &聽returning to fiscal consolidation is necessary. The main question is why it is so important. Let’s look at the consequences of high聽fiscal deficit:

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A risk to high government borrowings leads to more debt servicing that cuts expenditure on various social welfare schemes, if TAX聽revenues do not matchup. In the current financial year, out of the 4 lakh crore borrowing, more than 50% has gone towards interest聽payments.

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Secondly, the higher government borrowing from market means less availability of funds to private borrowers. In the current Fiscal year, due to dismal credit growth, we haven’t seen pressure on Interest rates. But going forward we foresee normal聽credit growth in the next financial year. However as the government borrowing is expected to remain at same level in the next聽fiscal, pressure on interest rate is expected.

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So, this year the theme of Budget would any way be to maintain economic recovery through investment for building infrastructure聽rather than funding the expenses/consumption. But at the same time focus will be to bring down the fiscal deficit.

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The catch here is聽bringing down deficit by cutting expenditure means risk to growth & the other alternative is to increase revenues. While the direct聽tax collections are encouraging, on the indirect taxes front the government is still struggling to get desired revenues. This is聽because after September 2008, when the global financial system collapsed, the government came out with stimulus packages to聽keep up the desired growth pace.

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Excise rates since December 2008 had been progressively cut from 16, 12 and 8 per cent to 10, 8聽and 4 per cent respectively depending on the product in question. Service tax was also reduced from 12 to 10 per cent.

GST Introduction in April to Reduce Indirect Tax Burden

GST Introduction to Reduce Indirect Tax Burden

The Finance Ministry maintained that the net burden of indirect taxes on the people would reduce by 25-30% when the proposed Goods and Services Tax (GST) is introduced from April 1, 2010.

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However, it is said that real estate would also be brought under the GST scanner and deliberations in this regard between the Centre and the States were almost conclusive.

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The draft legislation on GST had been referred to legal experts and would be finalized in order to facilitate the government to achieve target of implementation of Goods and Services Tax as has been promised by April, 1, 2010.

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Meanwhile, it is said that there were divergent views expressed by the Empowered Committee of State Finance Ministers and the Thirteenth Finance Commission (TFC) on certain issues relating to GST, but noted that these were on the verge of finding a solution.

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On the other hand, according to the implementation programme, the government plans to introduce the GST regime from the new fiscal to replace excise duty and service tax at the Central level and the VAT at the State level, apart from others levies like cess, surcharges and local taxes as currently applicable on good and services.

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Centre’s Fiscal Deficit is Rs 2.45 Lakh Crore in First 7 months of 2009-10

Centre's fiscal deficit exceeded Rs 2.45 lakh crore in the first 7 months of 2009-10.

The Centre”s fiscal deficit more than doubled to Rs 2.45 lakh crore in the first 7 months of 2009-10.

 

With this, fiscal deficit during April-October, 2009 reached over 61% of the targeted level of over Rs 4 lakh crore for the current fiscal.

 

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However, the government projected fiscal deficit of 6.8% of GDP for the current fiscal while with GDP likely to increase with a high growth rate of 7.9% recorded in Q2, there is more room to contain the fiscal deficit within the targeted level.

 

Meanwhile, the fiscal deficit already crossed over 87% of the targeted amount for entire 2008-09 as the government was expecting fiscal deficit of just 2.5% of GDP at this point of time last time.

 

Notably, Fiscal Deficit is a economic phenomena when a government’s total expenditures exceed the revenue that it generates (excluding money from borrowings).

 

Deficit differs from debt, which is an accumulation of yearly deficits.

 

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Moreover, when excise duty was cut by 6% and service tax by 2% from December onwards and plan expenditure rose as part of stimulus package, the government revised its target to 6% of GDP, which later turned out to be 6.2%.


The rise in fiscal deficit could be gauged from the fact that tax revenues decreased by around 8% to 2.13 lakh crore till October this fiscal against Rs 2.32 lakh crore a year ago.

 

The Centre’s revenue deficit, which is a gap between revenue receipts over revenue expenditure like salaries, rose by 138 per cent to stand at Rs 20.76 lakh crore during April-October, 2009.

 

NEWS ROUND UP – ECONOMY & INDUSTRIAL SECTORS

Hello Friends here we come up with the Latest News round up from Indian Economy and various industrial Sectors of the country.

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NEWS ROUND UP

Economy

India’s industrial output rose at a faster-than-expected 9.1 percent in September from a year earlier. Manufacturing production rose 9.3 percent in September from a year earlier.

路 The green shoots visible in the economy failed to enhance government revenue with indirect tax collections 鈥 comprising customs, excise and service tax 鈥 falling almost 22 per cent to Rs 1,26,903 crore in the April- October period this year.

It stood at Rs 1,61,954 crore in the corresponding seven months of 2008-09. The overall decline was led by a 32 per cent fall in customs revenue.

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Oil & Gas

Reliance Industries Ltd. found oil in a block in the western state of Gujarat and is assessing the commercial viability of the discovery, which may help increase domestic fuel supplies.

Five wells were drilled in the 635 square kilometer area located in the Cambay basin, about 130 kilometers (80 miles) from Ahmedabad

Oil and Natural Gas Corporation (ONGC) has decided to merge its energy trading joint venture with steel tycoon Lakshmi Mittal with their exploration tie-up.

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Metals

Tata Steel has approved an exchange offer for an existing $875 million of securities into foreign currency convertible bonds (FCCBs), in a move to reduce costs and ease repayment.聽 The move gives an option to extend the repayment schedule by two years.

Hindalco Industries plans to raise about Rs 2,900 crore in the next three to four weeks.
In July, it had announced plans to raise Rs 2,400 crore through Qualified Institutional Placement (QIP).

The issue could not take place due to the volatility in the stock markets.

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Capital Goods

Larsen & Toubro Limited (L&T) has secured a contract worth Rs 1,635 crore to build a coal-fired plant for Madhya Pradesh Power Generation Co. Ltd.

The project will be executed on turnkey basis and L&T’s scope includes design, engineering, manufacture, supply, erection and commissioning of balance of Plant Package (BoP) systems.

路L&T one of the failed suitors for scam-hit Satyam Computer, sold 2.32 per cent stake in the IT company (now Mahindra Satyam) for over Rs 306 crore, exactly a month after the lock-in perid on sale of its holding ended.

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Refineries

MRPL is planning to invest Rs 6,000-8,000 crore starting from early 2011.

The company is looking at raising around Rs 5,000 crore to support its expansion plan, for setting up a polypropylene plant and installing a single buoy mooring (SBM) at the Mangalore port.

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FMCG

Emami is diversifying into the cement business and will invest Rs 1,750 crore to set up production units in the next three years.

As part of the new plan, group company Emami Cement will set up a fully integrated cement plant in Chhattisgarh with an installed capacity to produce 3.1 million tonnes.

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Finance

Power Finance Corporation has decided to lend Rs 50,000 crore, over two third of its total asset base, to fund various proposed power projects in the country.

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Note : For More Latest Industry, Stock Market and Economy News and Updates, please click here

E-Filing of Service Tax to be Made Mandatory in Coming Months

E-Filing of Service Tax Set to be Made Mandatory in Coming Months

E-Filing of Service Tax Set to be Made Mandatory in Coming Months

The government will make electronic filing of service tax mandatory within a couple of months, said a senior official of the Central Board of Excise and Customs (CBEC).

鈥淓lectronic filing of service tax will be made compulsory in the next two months,” CBEC member Mr Y G Parande told reporters on the sidelines of a PHD chamber seminar.

Parande also expressed hope that despite impact of stimulus package on realisation of revenue, the government would meet service tax collection target during the financial year.

During the year, the government proposed to garner Rs 65,000 crore as service tax.

The service tax collection during the first seven months has dropped by 5.4 per cent to Rs 28,926 crore compared with corresponding period last year.

The collections of indirect tax, including customs, excise and service tax, fell by 21.6 per cent to Rs 1,26,903 crore during the period of April-October.

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Attributing decline in revenue collections to incentives given by the government to help the economy combat the impact of global slowdown, Mr Parande said, 鈥渃ertainly, the stimulus packages have had the effect (on indirect tax collections), particularly because rates were brought down.”

Earlier, stimulus packages and economic slowdown have hit the exchequer hard as indirect tax collections shrunk by 21.6 per cent to Rs 1.27 lakh crore in the first seven months of this fiscal, against Rs 1.62 lakh crore a year ago.

All the three components of indirect tax 鈥 excise, customs and service tax 鈥 have registered decline in collections.

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As stimulus is taking a heavy toll on the exchequer, talks have also already begun about when to withdraw it.

Prime Minister Manmohan Singh had said it will be phased out from next fiscal, while Finance Minister Pranab Mukherjee had said it will continue till the global economy recovers.

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PM asks states to work for GST implementation

PM Manmohan Singh has asked the states to work towards speedy execution of the new indirect tax system

PM Manmohan Singh has asked the states to work towards speedy execution of the new indirect tax system

Prime Minister Manmohan Singh asked the states to work towards speedy execution of the new indirect tax system as the deadline of April 1, 2010, for introduction of proposed goods and services tax is nearer.

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However, the Centre and states have not yet reached an agreement for goods and services to be included in the GST regime.

Moreover, the decision on a lower charge on food products and exemption to some of them is still to be taken.

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Further, GST will do away with most of central indirect taxes like excise and service tax level and VAT as well as subsume local levies like octroi and purchase tax at the state level.

On the other hand, the Empowered Group of State Finance Ministers decided about the levy having a dual structure, one at the Centre and the other at the state level.

States also decided to have 2 main rates for GST along with a special rate for precious metals but the Centre is yet to take a call on it.

However, many states are not willing to subsume the local levy and also have a fear of losing financial autonomy.

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Sebi’s Another Jolt to the Fund Houses – MF Exit Load for 1st Year !!

MF Exit Load Charges


Within weeks of shaking up the mutual fund industry by abolishing entry load in all schemes and moving to a uniform exit load regime, Sebi has given another jolt to the fund houses.

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The Securities and Exchange Board of India (Sebi), in a meeting with mutual fund heads, has recommended that the tenure for charging of exit loads be made uniform at one year.

This move is seen as Beneficial for Investors.

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Sebi suggested fund houses to move to a regime of charging exit loads only for the first year of investments.

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After Sebi mandated that all entry loads should go and exit loads should be uniform across-the-board, fund houses had gone into a rejig mode with their finances so that they could compensate MF distributors.

The change in the compensation structure was done with the assumption that exit loads could be there for perpetuity.

But 鈥渢he recent Sebi suggestion on exit load has sent all those changes to the compensation structure for a toss,鈥欌 said a top official at a fund house.

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The Sebi chairman C B Bhave advised that increasing the exit tenure beyond a year would not be in keeping with investor interest.

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MF industry officials said that limiting exit load to a year could lead to increased inclination among investors to move out of a scheme if the returns over one year are good.

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Earlier, as part of the rejig exercise to change the compensation structure, a host of fund houses had increased exit load period.

Now if Sebi鈥檚 advice becomes a rule, all those will have to be reversed, industry players said.

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However, as the CEO of a fund house pointed out that so far Sebi has not come out with any formal letter. 鈥淚t鈥檚 still evolving. I believe a lot of things can happen before it is formally notified,鈥欌 said the fund house CEO.

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Within weeks of shaking up the mutual fund industry by abolishing entry load in all schemes and moving to a uniform exit load regime, Sebi has given another jolt to the fund houses.

The Securities and Exchange Board of India (Sebi), in a meeting with mutual fund heads held on Tuesday, has recommended that the tenure for charging of exit loads be made uniform at one year.

In a late evening meeting on Tuesday, Sebi suggested fund houses to move to a regime of charging exit loads only for the first year of investments.

After Sebi mandated that all entry loads should go and exit loads should be uniform across-the-board, fund houses had gone into a rejig mode with their finances so that they could compensate MF distributors.

The change in the compensation structure was done with the assumption that exit loads could be there for perpetuity.

But 鈥渢he recent Sebi suggestion on exit load has sent all those changes to the compensation structure for a toss,鈥欌 said a top official at a fund house.

鈥淥ur capacity to pay to the distributors will reduce substantially,鈥欌 said the head of a local fund house.

“The Sebi chairman C B Bhave advised that increasing the exit tenure beyond a year would not be in keeping with investor interest,”

MF industry officials said that limiting exit load to a year could lead to increased inclination among investors to move out of a scheme if the returns over one year are good.

Earlier, as part of the rejig exercise to change the compensation structure, a host of fund houses had increased exit load period.

Now if Sebi鈥檚 advice becomes a rule, all those will have to be reversed, industry players said.

However, as the CEO of a fund house pointed out that so far Sebi has not come out with any formal letter. 鈥淚t鈥檚 still evolving. I believe a lot of things can happen before it is formally notified,鈥欌 said the fund house CEO.

Sebi鈥檚 MF ruling may lead to service tax loss !

Mutual funds

Sebi鈥檚 decision to abolish entry loads in all mutual fund (MF) schemes can have certain implications as discussed below :

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While there could be huge slippages of service tax paid by the fund industry, it could also lead to proliferation of bogus independent financial advisors (IFAs) without proper certification, and in turn mis-selling of MF schemes, industry officials said.

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They also believe that in the long run, the decision could lead to cartelisation in the MF industry with just a handful of large funds houses and distributors ruling the market.

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Currently, when an investor opts for a scheme, the fund house directly deducts service tax from the commission it pays to the distributor or IFA.
In turn, the fund house deposits this with the government.

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But very soon, fund houses will not have anything to do with the service tax over distribution commission, since under the new structure, investors will pay the commission directly to the distributor/IFA.
So the onus of paying service tax will now be on the distributor/IFA.

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Chances are that there will be substantial leakage of revenue for government through under-reporting or non-reporting of advisory commission,鈥欌 said a top fund industry official at an AMC.

Industry estimates that in the last financial year total service tax paid by the fund houses was about Rs 160 crore. 鈥樷楢 large chunk of this could remain with advisors now鈥欌 the official pointed out.

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Another fallout of the changed fee structure could be proliferation of advisors without proper training and registration in the fund industry.

After this ruling and change, anyone can become an advisor and charge the investor for advice,鈥欌 a top official at a local fund house said.

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Another fallout could be squeezing out of AMCs and distributors with limited financial resources and growth of larger players.
In the changed scenario of no entry load, AMCs will have lesser funds at their disposal for marketing and business expansion.

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The fund industry is on way to suggests a way to get out of this situation.

Stay tuned ! 馃檪