The Govt needs to pursue disinvestment, including privatisation, as an objective by itself instead of linking it to revenue receipts and meeting the fiscal target The Department of Investment and Public Asset Management (DIPAM) is in a war of words with the Ministry of Finance (MoF) over the proceeds of disinvestment of the Government’s shareholding in Central Public Sector Undertakings (CPSUs) during 2020-21. The point raised by the DIPAM is that out of the Rs 2,10,000 crore target fixed in the Union Budget, a big slice of Rs 90,000 crore, was thrust upon it by the MoF as being the projected proceeds from the sale of 10 per cent shares in the Life Insurance Corporation (LIC) and its residual stake...
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Category: Economic outlook
Equalization levy – India must not backtrack
On June 2, 2020, the Trump administration had announced the “Section 301 investigation” under the US Trade Act, 1974 into digital services taxes (DST) that have been either adopted or were under consideration by its trading partners viz. Austria, Brazil, the Czech Republic, the European Union (EU), India, Indonesia, Italy, Spain, Turkey and the UK. Conducted by the United States Trade Representative (USTR), the objective of the probe was to determine whether levies on electronic commerce discriminate against US technological giants like Apple, Google, Amazon and so on. On January 6, 2021, the USTR released its findings on the probe and concluded that India’s 2% DST is discriminatory and restricts US commerce. It has raised three aspects which it alleges,...
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Gas under GST – is government serious?
Reportedly, the Ministry of Petroleum and Natural Gas (MoPNG) has taken on board a proposal mooted by the industry during recent pre-budget discussions to bring natural gas within the ambit of the Goods and Services Tax (GST) thereby ensuring a uniform tax on gas throughout the country. Touted as a major step forward in realizing Union Government’s goal of increasing the share of natural gas in India’s energy mix from the current level of 6.2% to 15% by 2030 by reducing its cost for both industrial and domestic use, the MPNG has indicated that the proposal will be placed before the GST Council (The Council is the all powerful federal body mandated to decide on all GST matters viz. tax...
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A taxing problem
India’s sovereign taxation rights on capital gains cannot be held hostage to its bilateral investment treaties with other countries The Permanent Court of Arbitration (PCA) tribunal in The Hague has rejected the back tax demands of Indian tax authorities in both, the Cairn and Vodafone cases. These back taxes relate to capital gains made on transactions in 2006-2007. According to the PCA, the demands have been rejected on two counts. First, they violate India’s obligations under Bilateral Investment Treaties. Second, they are based on a retrospective amendment to a tax law passed in 2012. Both the arguments are untenable. As regards the first, tax is levied on the earnings of the companies from their operations in India. The Government has done nothing...
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Disinvestment – chasing a mirage
Reportedly, the Department of Investment and Public Asset Management (DIPAM) which deals with all matters relating to management of Union Government investments in equity including disinvestment of its shareholding in Central Public Sector Undertakings (CPSUs) is in a war of words with the Ministry of Finance (MoF) over the target of proceeds of disinvestment during the current financial year (FY) i.e. 2020-21. In the Union Budget for 2020-21 presented on February 1, 2020, the Finance Minister, Nirmala Sitharaman had set the target at Rs 210,000 crore – a steep increase over the revised estimate (RE) for FY 2019-20 at Rs 65,000 crore (the actual for that year was even lower at about Rs 50,000 crore). The point raised by DIPAM...
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Taxing capital gains – legal muddle
In a span of just three months, Modi – government has been confronted with two orders of an international arbitration tribunal overturning demand raised by the Income – Tax (IT) department on multinational companies in back taxes on income arising from capital gains by made by the latter on sale of their ownership in Indian companies – running into tens of thousand crore. First, on September 25, 2020, an international arbitration tribunal rejected Indian tax authorities’ demand for Rs 22,100 crore in back taxes (Rs 7,990 crore plus interest and penalty) relating to Vodafone Group Plc (the British telecom giant) US$ 11billion acquisition of 67% stake in the Hutchison Essar Ltd (HEL) – an Indian company running mobile phone business...
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Many a slip…
It is natural to expect an economic rebound in FY 2021-22. But it is vital to take a pragmatic view based on an objective assessment of how the situation unfolds on ground zero The green shoots seen in October, in particular the rise in the Index of Industrial Production (IIP) by 3.6 per cent, have prompted agencies to revise their growth assessment for the current financial year (FY) from the minus 9.5-10.5 per cent projected earlier to minus 7.5-8.5 per cent, now. For the FY 2021-22, when the impact of the virus is expected to subside to a large extent due to the availability of the vaccine, it is only natural to expect an economic rebound. However, it is necessary...
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On road to recovery
The growth of real Gross Domestic Product (GDP) had already started sliding from the third quarter of FY 2018-19 and continued all through the FY 2019-20 culminating in a low of 3% during its last quarter ending March 31, 2020. During the whole of 2019-20, the growth plummeted to a decade low of 4.2% down from an average of 7.5% recorded in the previous 5 years i.e. 2014-15 to 2018-19. A nation-wide lockdown announced by the Prime Minister, Narendra Modi on March 24, 2020 dwelt a body blow by bringing most of the economic activities to a grinding halt. As a result, there was precipitous decline in GDP growth by 24% during the first quarter of current FY ending June...
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Don’t squeeze PSUs
The Govt should collect money from all those who owe it instead of squeezing CPSEs for bridging fiscal gaps. This is neither healthy for the economy nor good for the enterprises The Department of Investment and Public Asset Management (Dipam) has come out with a circular requiring Central Public Sector Enterprises (CPSEs) to pay interim dividend every quarter or half-yearly, depending on whether it is a relatively higher dividend (100 per cent or Rs 10 on a share of Rs 10) or less. Even those which can’t pay the prescribed “minimum” must give an interim dividend. Further, at least 90 per cent of the projected annual dividend should be paid as interim. Even as the bureaucrats justify this in terms...
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Don’t squeeze PSUs for fiscal gains
Vide a letter addressed to the central public sector enterprises (CPSEs) the department of investment and public asset management (Dipam) under Ministry of Finance has asked (i) enterprises which pay relatively higher dividend (100% or Rs 10/- on a share of Rs 10/-) may consider paying interim dividend every quarter after declaration of quarterly results; (ii) enterprises which pay less than 100% may consider paying interim dividend usually on half-yearly basis; (iii) those which can’t pay as per the prescribed ‘minimum’ should pay interim dividend during October/November each year based on projected profit after tax (PAT) following second quarter (July – September) results. All CPSEs should consider paying at least 90% of projected annual dividend, in one or more installments, as...
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