Tuesday, June 14, 2011
Bill to trace black money ready
The government has prepared a bill to confiscate illegal money stashed in India by foreigners or put away by Indians in offshore banking accounts.
“We will introduce the bill in Parliament in the monsoon session,” finance minister Pranab Mukherjee told reporters.
The bill will allow India to discharge its international obligations and enable it to put pressure on other countries to help identify and confiscate illegal funds put away by Indians in offshore banking accounts.
Last week, the government had set up an eight-member panel headed by Prakash Chandra, chairman of the Central Board of Direct Taxes (CBDT), to recommend a mechanism to recover illegal money, whether parked in India or abroad, and suggest a legal and administrative framework to deal with the menace of illegal money.
Any money earned through corrupt or illegal means or possessed by evading income or other taxes such as excise or customs duty is black money.
India, Mukherjee said, was also negotiating Double Taxation Avoidance Agreements (DTAA) with several countries and will sign Tax Information Exchange Agreements (TIEA) with tax havens.
“We are getting substantial co-operation,” he said.
The government, the minister added, is in a position to make changes in the income tax act to tackle non-cooperative jurisdictions.
One option is to slap a withholding levy, or tax deducted at source, of 30 per cent or more on payments to entities in countries and tax jurisdictions that refuse to share information.
“We have developed a toolbox... We have enabled ourselves to declare (tax havens) as non-cooperating jurisdiction and countries as and when the situation arises. We will take appropriate steps,” said Mukherjee.
However, as of now “no country” has been put in the category of a “non-cooperating jurisdiction”, he said.
The G20 leaders had asked each country at their Seoul summit last year to develop counter-measures against non-cooperative jurisdictions.
Under the provisions, the government will notify the countries that are reluctant to share banking information and other details.
Twin perils
Mukherjee today also called for stepping up multilateral co-operation to end banking secrecy and deal with the “abusive” transfer pricing mechanism.
“While the countries have agreed to end bank secrecy in general, some countries have agreed to do so only from a prospective date and are not willing to exchange past banking information,” he said.
Such issues put a question mark on the efficacy of the present legal provisions for exchange of banking information, he said. “There is an urgent need to revisit the existing legal framework developed by the OECD.”
The Organisation for Economic Co-operation and Development (OECD) is a 34-member grouping of developed and developing countries. India is also strengthening its transfer pricing provisions to stop the shifting of profits outside the country.
Source- The Telegraph, Kolkata, 14/06/2011
Twin cost threats refuse to recede
Higher interest rates and input costs, which ate into the fourth-quarter earnings of corporate India, still remain a potent threat, brokerages believe.
Market watchers said investors should be cautious on their stock picks as the twin threat could erode values.
“While the macro headwinds led by slower industrial activity, higher interest rates and cost inflation had been threatening the earnings growth momentum, the toll is worse than expected in fourth quarter aggregates,’’ a report by Motilal Oswal said.
According to the brokerage, the underperformance of several heavyweights in the fourth quarter was disappointing and resulted in an earnings decline of 0.4 per cent in the sensex pack.
Analysts are advising caution to investors as the interest rate and inflation threats are yet to die down.
The disappointments that we are seeing in the fourth quarter may continue in the current period as well and, therefore, investors should be cautious in their approach. They could look at specific stocks in defensive sectors such as FMCG and pharma.
While the RBI was likely to keep jacking up rates to tame inflation, input pressures were unlikely to subside and could impact margins.
Besides auto and infrastructure, banking (largely PSU lenders), telecom, metals, oil and gas and real estate disappointed during the quarter.
The IT sector came up with a mixed performance as a seasonally weak period saw some companies disappointing on the volume growth front, while the others registering positive revenue growth. Pharmaceuticals and FMCG put up a good show with the latter benefiting from lower advertisement spend.
According to observers, banking and metals may see a dip in their margins because of high borrowing and raw material costs.
Maruti insurance arms court trouble
Problems are adding up at Maruti Suzuki, which is fighting a labour turmoil at its Manesar plant. Storm clouds are now hovering over the car maker’s six subsidiaries that have been selling insurance policies as corporate agents of various general insurance companies.
The Insurance Regulatory and Development Authority (IRDA) has fined six general insurance companies — National Insurance Company, New India Assurance Company, ICICI Lombard, IFFCO Tokio, Royal Sundaram Alliance and Bajaj Allianz General Insurance Company — a sum of Rs 5 lakh each for granting corporate agency licenses to six Maruti Suzuki subsidiaries violating regulations.
Following this, the insurers are likely to cancel their agency license to Maruti subsidiaries.
Maruti Suzuki India had formed six subsidiaries —Maruti Insurance Business Agency Ltd, Maruti Insurance Distribution Services Ltd, Maruti Agency Network Ltd, Maruti Insurance Agency Solutions Ltd, Maruti Insurance Agency Services Ltd and Maruti Insurance Agency Logistics Ltd.
The car maker holds 99.99 per cent equity in each of the subsidiaries and has procured corporate agency licenses between 2002 and 2007 for selling policies from various general insurance companies.
IRDA noted that insurers granted licenses to Maruti subsidiaries “grossly violating” the IRDA (licensing of corporate agents) Regulations, 2002.
According to the regulation, only one license (of the corporate agent) can be granted to one business group provided that the group doesn’t have any other insurance activity, including brokering, agency or product manufacturing.
The regulation also defines that all companies in which a single promoter group holds 10 per cent equity or more will be considered belonging to the same business group.
For granting corporate agency licenses to group companies, insurers need prior approval from the insurance regulator.
However, the six Maruti subsidiaries were granted licenses by insurers without complying with these regulations. “This was clearly possible by circumventing the provisions and guidelines to their advantage and such blatant violations itself calls for stringent action,” the insurance regulator said.
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