Skip to main content

Cos Rush to Merge Arms for Better Efficiency Under GST

By
PREPARING FOR NEW REGIME Experts say subsidiaries created to avail of excise duty incentives will be irrelevant, and mergers will help reduce compliance work
Various companies are rushing to merge their subsidiaries with themselves ahead of the implementation of Goods and Services Tax (GST) to reduce tax, operational and administrative costs and to eliminate multiple legal entities. At least 100 companies, such as Asian Paints, Sun Pharma, L&T, BPCL, Sundaram Finance, Religare Enterprises and Arvind, have announced the merger of their subsidiaries with the parent in the last three months.
Many of the companies had created multiple units in the past to save on taxes but such incentives will cease to exist under GST.
“With the implementation of GST, all the tax planning and tax savings structure would be invalid and those subsidiaries which were created for availing the excise duty incentives will be irrelevant,“ said Sachin Menon, head­indirect tax, KPMG. “GST would also curb scope of various tax evasion practices such as creation of multiple entities to enjoy high exemption thresholds.“
Engineering-to-software conglomerate L&T, while merging its subsidiary Spectrum Infotech with itself, said that the proposed amalgamation will result in administrative and opera tions rationalisation, organisational efficiencies, reduction in overheads, personnel costs, compliance cost and other administrative expenses.
Sun Phar ma has proposed to merge four of its subsidiaries -Sun Pharma Medisales, Ranbaxy Drugs, Gufic Pharma and Vidyut Invesment -with itself.
“When all the cascading effects of CENVAT and Service Tax would be removed with a continuous chain of setoff from the producer's point to the retailer's point under GST regime, merger of subsidiaries in any form would only help to reduce the number of compliances to be made, keeping the GST kitty of the government tax neutral,“ said Nishit Dhruva, managing par tner, MDP & Par tners (Advocates & Solicitors).
Under GST, all transactions done within group entities are liable to pay taxes as per various valuation methodologies, said tax experts.
“Under GST, in the event of related party transactions like sale or transfer of business or products or assets within subsidiaries, the transaction shall be treated as supply even when these are transferred without consideration, and the business is liable to pay GST,“ said Raman Singla, partner indirect tax & GST, Devalya Advisory LLP. “Also, for multi-subsidiaries, there are many other problems like various state jurisdictions to separately assess transactions which make companies' work cumbersome.“
Religare Enterprises recently merged 11 fully-owned subsidiaries with itself citing organisation streamlining.
The Economic Times New Delhi,16th February 2017

Comments

Post a Comment

Popular posts from this blog

RBI deputy governor cautions fintech platform lenders on privacy concerns during loan recovery

By
  India's digital lending infrastructure has made the loan sanctioning system online. Yet, loan recovery still needs a “feet on the street” approach, Swaminathan J, deputy governor of the Reserve Bank of India, said at a media event on Tuesday, September 2, according to news agency ANI.According to the ANI report, the deputy governor flagged that fintech operators in the digital lending segment are giving out loans to customers with poor credit profiles and later using aggressive recovery tactics.“While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require a 'feet on the street' and empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often with poor credit profiles,” Swaminathan J said.   Fintech platforms' business models The central bank deputy governor highlighted that many fintech platforms' business models involve providing sm
Post a Comment
Read more

Credit card spending growth declines on RBI gaze, stress build-up

By
  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the rep
Post a Comment
Read more

India can't rely on wealthy to drive growth: Ex-RBI Dy Guv Viral Acharya

By
  India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI) said on Monday.Acharya, who is the C V Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), said after the Covid-19 pandemic, rural consumption and investments have weakened.We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he said while speaking at an event organised by Elara Capital here.f there has to be a trickle-down, it should have actually happened by now,” Acharya said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem.   “The bank account keeps getting bigger, hence they look for financial assets to invest in. India is closed, so our money can't go outside India that easily. So, it has to chase the limited financial assets in the country and
Post a Comment
Read more