Month: July 2019

Union Budget 2019 wish list: Financial services sector bats for regulatory easing

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The expectations from this decisively re-elected Central government’s first Union budget are quite diverse and understandably quite optimistic.

But considering the sops already offered by the populist Interim Budget, the overhauling of the income tax law by the impending Direct Tax Code and the need for a pragmatic approach to tackle the current fiscal conundrum, one needs to tame the expectations from the July 5 event.

Having said that, certain financial services sectoral tax wish list warrant attention and action.

De-stressing the distressed

The NBFC sector is reeling under a crippling liquidity crunch. The exemption from thin capitalisation rules granted to banking and insurance sector, if extended to NBFCs, will facilitate tax efficient access to off-shore funds and thereby grant much-needed respite to the shadow-banking industry. Similar exemption can also be granted to Asset Reconstruction Companies (ARCs).

Where the shareholding carrying more than 51 percent voting power of a company undergoes a change, the accumulated losses incurred by it in the prior years is not allowed to be carried forward and set-off against future profits. For the ARCs dealing with distressed entities, resolution strategies involve change of majority shareholding of the distressed entity which in turn results in paying up of taxes for lapsed losses. To promote turnaround of distressed entities, an exemption can be granted to them to continue to carry forward accumulated losses, in spite of change of more than 51 percent shareholding.

Fight for foreign funds

Restrictive caps on FDI need to be relaxed (for instance, in the insurance sector) for proliferation of FDI inflows.

Further, to encourage investments by FPIs in debt, the sunset clause for lower withholding tax rate of 5 percent on interest income earned on certain bonds and government securities can be extended beyond June 30, 2020.

To provide tax clarity and certainty, exemption from overseas transfer provisions was granted to Category I FPI and Category II FPI. The same needs be extended to Category III FPIs as well.

Transaction tax

With the withdrawal of long-term capital gains tax exemption, levy of Securities Transaction Tax (STT) needs to be reconsidered. STT can be completely abolished. Alternatively, either a rebate of STT paid can be allowed or a claiming of deduction of STT paid for computation of capital gains can be permitted.

Realty bytes

The tax benefits available for promotion of affordable housing can be fruitfully realised if the onerous conditions required to be satisfied are relaxed. For instance, the maximum permissible carpet area limit of 30 sq.mts. for residential units located in Delhi, Mumbai, Chennai and Kolkata be enhanced, to say, 40 sq.mts.

Restriction on amount (only up to Rs 2 lakh) of loss from house property permitted to be set off against other heads of income should not be made applicable to commercial properties.

Similarly, for computation of income from house property, the cap of Rs 2 lakh as permissible deduction of interest on housing loan can be either removed or enhanced.

To promote investments in Real Estate Investment Trust (ReIT), the holding period of ReIT units to qualify as long-term capital asset can be reduced from 36 months to 12 months.

Alternative investment, alternative relief?

Alternative Investment Funds (AIFs) are Sebi-regulated investment pooling vehicles which serve as a vital investing and financing medium to cater varied types of investors and investees. Acceding to industry demands, Category I AIF and Category II AIF were granted income-tax pass-through status. Similar exemption and clear tax code need to be extended to the close-ended Category III AIFs and its investors to promote and sustain the unique investment and financing opportunity offered by these AIFs.

IFSC

To provide impetus to the nascent International Financial Services Centre (IFSC), foreign investors investing directly and only in IFSC need to be exempted from arduous compliances of obtaining PAN and filing of return of income.

Finally, while we can keep piling on the wish list, the Union Budget is no exception to the old adage, ‘you can’t meet everyone’s expectations’. One can only hope that the new finance minister’s maiden attempt brings in maximum benefits to the maximum number of stakeholders.

 Bhavin Shah is Partner and Leader, Financial Services – Tax, at PwC. The author was assisted by Vaibhav Patani, Manager, PwC.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

AM Naik, L&T’s longest serving boss, was once nearly rejected by the engineering company

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Anil Manibhai Naik, popularly known as AM Naik, wasn’t always a top dog in India’s technology and engineering space.

In fact, when the Larsen & Toubro (L&T) patriarch first applied for a job at the multinational conglomerate, he nearly failed to land one.

Naik, then a fresh engineering graduate from Birla Vishwakarma Mahavidyalaya in Gujarat, didn’t make the cut because L&T preferred to hire IITians.

So he joined a small company called Nestor Boilers, where he quickly rose up the ranks to head a contingent of 350 workers. However, after the company changed hands from a Parsi to a Gujarati family, Naik realised his growth would be stifled and so he decided to walk.

Destiny brought him to L&T’s doors. “I saw an advertisement,” Naik told CNBC-TV18 in an interview that aired on April 8, 2015, “and received an interview call from one Mr Baker.” He was referring to ET Baker, the then manager at L&T’s workshops, with the fearsome reputation of having rejected 40 previous aspirants.

Naik could well have been the 41^st, but with the jauntiness that has always characterised him, he went ahead for the interview.  Baker quickly realized that he had a prize catch in his hands.  But there was one more hurdle – another interview with Baker’s boss, the unsmiling, formidable Gunnar Hansen. The second interview didn’t go as per the script.

Hansen felt that the young man before him was “overconfident”, and advised Baker to start Naik’s career at a lower rung – Junior Engineer in place of Assistant Engineer.

But Naik was unfazed, and Baker had a further word of consolation. “If you do a good job, sonny boy,” he told Naik, “I will fight with the old man and get you everything I had promised earlier.” Naik joined L&T on March 15, 1965 at a truncated salary of Rs 670 per month.

The 77-year old rapidly rose to positions of increasing responsibility as he moved from general manager to MD and CEO, leading to his appointment as Chairman and Managing Director on December 29, 2003.

“Basically I delivered, all India people started coming, local primarily because they got justice,” he said.

A powerful corporate honcho, Naik was key in building the $20 billion diversified L&T. Under his leadership, L&T expanded its portfolio in diversified fields like defence, nuclear power, aerospace, infrastructure, water and effluent treatment, hydrocarbon, financials services, and new age businesses like information technology and engineering services.

In 2013, he was ranked among the 32nd Best Performing CEO in the world by Harvard Business Review. He received the Gujarat Garima (‘Pride of Gujarat’) award and the Padma Bhushan in 2009.

In 2019, he received the Padma Vibhushan Award, recognising his contribution to nation, industry and society.

Naik’s life story is intertwined with the L&T story. At a company function, he once belted out a song in his rich baritone that said it all: ‘Jeena yahan, marna yahan, iske siva jaana kahan?’ (You live here, you die here. Where else can one go?)

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

How to feed the farmer – these budgetary measures will help address India’s agrarian crisis

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

In early 2019, the interim budget heavily focused on farmer and rural development and had placed the rural consumer and the ‘aam aadmi’ at the very centre of India’s growth ambition. Agriculture continues to be the focus for the government with its three-point agenda around doubling the farmers’ income, minimising risk of extreme weather conditions and supporting the farmer with credit facilities. Considering the current demographics today, below are our views on expectations from the upcoming budget for the agriculture sector.

Doubling farmers’ income

The government has been stressing on doubling farmers’ income in order to ensure their welfare and address the agrarian crisis. Doubling income is a function of increasing productivity, minimising cost of production and focusing on improving crop value realised by farmers.

Increasing productivity 

There could be several efforts directed to provide adequate water that could be used for modern irrigation and advanced farming techniques. This will have an impact on the overall crop productivity which may lead to overall input efficiency.

We could also expect the government to focus on schemes to incentivise farm mechanisation for improving yields for farmers.

Reducing cost of production:

Under Rashtriya Krishi Vikas Yojana (RKVY) programme the government allocates funds to increase yield and maximise returns for farmers.

Various storage facilities are proposed to be built near farms that would allow them to hold their produce without getting damaged until market prices go up thereby making it profitable enough for the farmers.

Push on GST relief towards farmers is expected especially on some items like milk products alongside the various tax exemptions to agriculture co-operatives.

Increasing price realisations:

Efforts could be made to reduce the middlemen between farmers and consumers, reducing costs and improving the realisation of farmers for their produce.

The government might also consider creating funds to ensure price stabilisation for certain crops that are out of the purview of MSP. However, this could also impact inflation and hence this will be a cautious move by the government.

Promotion of organic farming could also be an area that the government may intend to drive, thus giving scope for better earnings to farmers.

To address the price volatility of perishable goods, we could expect increased efforts on creating a secondary processing infrastructure.

Minimising risk of extreme weather conditions

With natural calamities or poor monsoons contributing towards low crop yield, budget allocation has been made to ensure proper assistance to all the affected farmers. This is ensured in several ways by part loan waivers, small concessions, interest subvention or repayment incentives to farmers.

Various subsidy programmes and insurance schemes may continue to be a major focus for protecting the farming community. There are plans for the government to invest in crop insurance and introducing technology for easier access to losses and a faster claim settlement.

Climate Resilient Agriculture could be an area of interest that the government might focus on to reduce the risk owing to climatic changes.

Supporting farmers with credit assistance

The reforms announced in the interim budget such as the ’Pradhan Mantri Kisan Samman Nidhi’, Pradhan Mantri Shram-Yogi Maandhan and the Kisan Credit Card scheme, will provide financial support to farmers by either providing additional income or financing arrangements. This is likely to drive consumption-led growth for the rural economy.

Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), the interim budget included a Direct Income Support scheme, where Rs 6000 was proposed to be transferred to small and marginal farmers annually. This will continue to be a welcome move, thus enabling farmers to benefit from this marginally. However, the quantum and coverage of this proposal could be suggested and analysed further during the upcoming budget.

One could expect the budget to focus on ways to increase availability of institutional credit to farmers to help them meet input costs and other operating expenses

The government may continue to focus on expanding the reach of Pradhan Mantri Fasal Bima Yojana scheme. This scheme essentially covers insurance and offers financial support to farmers in case of any crop failure as a result of calamities, pests or plant diseases. This scheme also helps farmers adopt innovative agricultural practices and ensures flow of credit to the agro sector. It is expected to expand the reach of the scheme to all the farmers and educate them to report and make claims under the scheme, so that they are benefitted from the scheme.

Lastly, we could also expect to see investments in agri-tech start-ups or agri-based innovation labs and significant focus on developing cold chain infrastructure and agri-exports by the government.  In summary, we sense a budget focusing primarily on farmers overall welfare and development as agriculture continues to remain a key growth driver for the economy.

Harsha Razdan is Partner and Head – Consumer Markets at KPMG India.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow