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Hold the RBI to account, do not undermine it It is welcome that the government has clarified that the draft code put out by the Financial Sector Legislative Reforms Commission is just that: a draft, and not necessarily a reflection of the government's thinking. If the draft were to become the law, the RBI will become a toothless body while core monetary policy will shift to the government. If the Urjit Patel committee's recommendation to vest policy-setting powers in all-RBI committee was a piece of central banking power grab, the present recommendation is an attempt to divest the RBI of any rate-setting power, even as it remains tasked with containing inflation. The government should rethink the code. One lesson from the 2008 financial crisis is that monetary policy in a globalising world has to shed its obsession with inflation and target multiple goals -financial stability , growth and stable prices -with multiple instruments: variable margins, quantitative limits, int...

Level playing field only for overseas investors who establish a business in the country India is likely to stop treating overseas investors on a par with domestic ones until they establish a business in the country, marking a significant change in stance on comprehensive trade and investment agreements from the previous government.Such a move would be of a piece with the finance ministry--concerned that India has given too much away in such accords--gaining a role in the negotiation of investment agreements. In technical terms, the government is unlikely to allow what is known as `preestablishment national treatment' in trade and investment agreements. With the government looking to overhaul the country's strategy for trade engagement, the view is that this level playing field should be available to foreign investors only once they have a presence--`post-establishment'--not when they're still considering investment. “The thinking is that only post-establishme...

Lack of visibility on rates and the political logjam make companies apprehensive Recently, an Israel- based company approached a consultancy firm to come out with a tax- efficient rollout plan for a proposed manufacturing plant in India with an estimated investment of around Rs.100 crore. The company was advised by its tax planners to hold on to its investment till the time the country rolls out the Goods and Service Tax ( GDP) regime. “ The company would have saved Rs.1015 crore through input tax credits under the GST regime,” said a tax consultant, who advised the firm, on condition of anonymity. The Israeli company decided to go by the advice of its tax experts, and go slow on its investment plans. Similarly, many companies in corporate India are getting jittery about increased working capital requirement, as they go about their initial assessment of the impact of GST regime on their businesses and finding it difficult to get a hang on their price and supply chain issues witho...

In a case of bounced cheque, it is not necessary to complain specifically against the company if the managing director is the sole proprietor. It is enough if the MD alone is made the accused under the Negotiable Instruments Act, the Supreme Court stated in its judgment, Mainuddin Abdul Sattar vs Vijay Dalvi. The Bombay High Court view opposed to this was wrong and it was set aside by the apex court. In this case, real estate firm Salvi Infrastruture Ltd could not provide a flat to its customer, and the customer wanted the money back. The MD issued a cheque to discharge the liability but it was dishonoured by the bank, leading to a criminal complaint before the magistrate. He dismissed the complaint as the complaint was only against the MD and not against the firm. This view was upheld by the high court. The Supreme Court held that both the courts were wrong. There was no necessity for the payee to prove that the MD was in charge of the daily affairs of the company, by virtue of the ...

In the wake of a recent report by the Supreme Court- appointed special investigation team ( SIT) on black money, the Securities and Exchange Board of India ( Sebi) is likely to review the regulations governing participatory notes (P- notes), according to a person with knowledge of the matter. " Sebi will consider closer scrutiny if found to be necessary." An official request for comment, however, did not elicit a response. The SIT had asked Sebi to examine whether the transfer of P- notes would be conducive for foreign portfolio investor flows. Sebi had in the past raised concerns on the misuse of P- notes. In its report, the SIT was critical of barring entities that were using the stock exchange platform to evade taxes under the provision of long- term capital gains and suggested to Sebi to launch prosecution under the Sebi Act. Launching prosecution in these matters might not be possible quickly as the investigation in these cases is yet to be completed, said asource....

The government has categorically informed the European Union (EU) that it will not allow European multibrand retail firms to set up shop here, even as both sides decided to resume negotiations towards concluding the long- pending Bilateral Trade and Investment Agreement ( BTIA). While the negotiations for a BTIA, or a free trade agreement (FTA) as it is better known, started in 2007, it has missed two deadlines since then. The government told EU it cannot allow the entry of multibrand retail chains due to political compulsions, although this is allowed under the foreign direct investment ( FDI) policy. “We have made it clear to the EU that we will not allow foreign direct investments in multibrand retail even if there is a policy,” a top official told Business Standard. Talks are now to resume next month. This will be the first such attempt by the Narendra Modi government since it came to power in May last year. Commerce and industry minister Nirmala Sitharman and EU trade co...

Govt says report about controversial tax on foreign investors to be made public only after scrutiny A governmentappointed panel submitted its report on minimum alternate tax (MAT) on foreign institutional investors (FIIs) on Friday, but the finance ministry did not disclose its contents, adding to uncertainties over the controversial levy that had rattled investors. The high-level Justice AP Shah Committee submitted a 66-page report to the government on the applicability of MAT on FIIs. The government had tasked the Shah panel, formed in May, to look into the applicability of MAT, a kind of tax on capital gains made by FIIs. A string of tax notices to FIIs in March had spooked markets, which were hit by anxieties over retrospective taxation of foreign funds. The tax department had issued notices to 68 FIIs seeking 602 crore as unpaid MAT over the past years. Finance minister Arun Jaitley in budget 2015-16 proposed to scrap MAT. FIIs are hoping that the government will wai...

STARING AT UNCERTAINTY 11 bills await nod as govt, Oppn harden positions One of independent India’s biggest economic reforms, the goods and services tax, may miss its rollout deadline next year as an acrimonious face-off between the government and Opposition threatens to wash out Parliament’s monsoon session, sources said on Friday. The key reform bill that aims to create a unified national tax market has a slim chance of making its April 1, 2016 deadline if the government fails to pass a pending Constitution amendment bill during the ongoing session because the states may not have enough time to approve it. A Constitutional amendment has to be passed by a majority in both Houses of Parliament with two-thirds of the members voting — a condition likely to be fulfilled only in the winter session, usually held in December. Once it passes Parliament, it has to be approved in the same manner by a majority of the 29 states but the GST’s road is made tougher by looming state electio...

The finance ministry on Friday sought to downplay a contentious suggestion by a government- appointed committee about taking away the veto power of the Reserve Bank of India governor in the proposed monetary policy committee ( MPC). It also highlighted the point that the committee was appointed by the previous United Progressive Alliance government and the incumbent one had common ground with the RBI governor on veto power. The consultation paper on the Indian Financial Code was not the last word on the RBI’s powers, said a senior finance ministry official. Other sources said the ministry had broad understanding with the RBI governor on veto rights. The government had no intention of diluting the power or autonomy of the RBI, they said. They also underscored the point that a decision to grant veto power to the governor would be taken at the " highest" level. On Thursday, a revised draft by the Financial Sector Legislative Reforms Commission ( FSLRC) was put up on th...

The Special Investigation Team (SIT) on black money has suggested amechanism for proactive detection of shell companies and deterrent penal provisions against persons involved in setting them up. It also wanted those making donation and recieving it in cash to be prosecuted under the prevention of corruption act ( PCA), particularly in the context of private schools and colleges. In its third report, made public on Friday by the finance ministry, the SIT wanted the Serious Frauds investigation Office (SFIO) to use MCA 21 filings to detect black money and more teeth for the Directorate of Revenue Intelligence ( DRI) to investigate in special economic zones. Pointing out that schools and colleges are accepting large donations by cash, running in even more than ? 1 crore, SIT wanted them to be booked under PCA, deeming them to be public servant. The SIT recommended the SFIO, which comes under the ministry of corporate affairs (MCA), actively and regularly mine the ministry’s ( MCA21) ...

Asks market regulator to check creation of such wealth via stock exchanges, P- notes A Supreme Court- appointed special investigation team (SIT) on unaccounted money has come down heavily on the creation of such funds through stock exchanges and participatory notes ( P- notes). In a report, the SIT said the Securities and Exchange Board of India ( Sebi) should have an effective monitoring mechanism to study unusual rises in stock prices and the use of stock exchanges to evade taxes through long- term capital gains. Sebi has also been asked to put in place a mechanism to monitor the beneficial owners of P- notes. The SIT has recognised the recent steps taken by the regulator to scrutinise cases of tax evasion through exchanges. Sebi has been sharing such information with the income tax department. Now, the SIT has directed it to share that with the Financial Intelligence Unit, too. The investigation into market manipulations shows the modus operandi involves companies with...