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

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

By
  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...
Post a Comment
Read more

Luxury carmakers urge clarity on GST rates to boost festive season sales

By
  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...
Post a Comment
Read more

Sebi proposes tighter norms for green bond third-party reviewers

By
  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...
Post a Comment
Read more