Finance ministry may cut capital gains tax on PE investments

Several PE investors have appealed to the ministry to bring them at par with foreign institutional investors (FIIs) as far as tax treatment is concerned

New Delhi: In order to attract foreign capital, the finance ministry may cut long-term capital gain tax from 20% to 10% on investments made by private equity (PE) funds into shares of unlisted companies, reports PTI.

Several PE investors have appealed to the ministry to bring them at par with foreign institutional investors (FIIs) as far as tax treatment is concerned.

“For PEs investing in unlisted securities currently they are charged higher rate of tax than FIIs. So they have requested to being them at par with FIIs. Let us see,” finance secretary RS Gujral told PTI.

As per the provisions of the Finance Bill, 2012, while FIIs pay a long-term capital gain tax of 10% for investment in unlisted securities, private equity (PE) investors pay 20%.

For listed securities, however, there is no tax on long-term capital gains.

Experts, however, said if the tax structure of the PEs is relaxed that would help them exit their investment in India without worrying much on the tax payout.

PE investors usually invest with a longer term, usually 5-8 year horizon, in start-ups and they prefer to exit their holding at the time of listing of the company.

However, volatile stock market conditions are delaying the listing plans of several companies and PEs are now going for private share sale to exit their holding.

The government has been taking steps to attract foreign capital both as foreign direct investment (FDI) and portfolio investment. These issues have assumed importance in view of the global financial problems which are impacting investments into the country.

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RBI not in favour of allowing MFIs to take deposits: RBI deputy governor

The draft MFIs (Micro Finance Institutions - Development and Regulation) Act, 2011, circulated for public comments by the finance ministry has a provision that allows MFIs to collect small savings from Self Help Groups (SHGs) known as thrift

Mumbai: Reserve Bank of India (RBI) deputy governor Anand Sinha on Monday indicated the central bank was not in favour of allowing micro-finance institutions (MFIs) to take deposits from public, reports PTI.

“After all, whatever legislation passes, we have to work with that. But, RBI’s position has been that deposit-taking should be limited to banks,” he told reporters in reply to a question on whether MFIs should be allowed to take small deposits.

The draft Micro Finance Institutions (Development and Regulation) Act, 2011 circulated for public comments by the finance ministry has a provision that allows MFIs to collect small savings from Self Help Groups (SHGs) known as thrift.

Finance minister Pranab Mukherjee in his Budget speech had said the government proposed to introduce the Bill in the ongoing Budget Session.

Earlier also the government had introduced a Micro Financial Sector Bill in the Lower House of Parliament in March, 2007. However, it lapsed when the term of the 14th Lok Sabha ended in 2009.

Mr Sinha further said that MFIs will have to take care of issues like concentration risk, reduction of operational costs and corporate governance to overcome problems of the fledgling industry.

“Southern region has seen major concentration of MFIs, both in terms of borrowing and number of clients. I think, they have to go to other regions of the country in order to diversify,” he said.

He further said that MFIs must reduce the operational costs for long-term sustainability.

The deputy governor said MFIs have to balance between financial and social objectives and maintain appropriate corporate governance for customer protection.

The MFIs must measure and disclose performance apart from changing the governance practices, he added.

On Basel III norms, the deputy governor said earnings of banks are likely to come under pressure due to the higher capital requirements for the implementation of new global risk mechanism.

“There is going to be pressure on banks’ earnings, not only in India but across the world. That’s why, Basel-III implementation has been made longer, so that there will be least disruption”, he said.

“However, if you have to do the same activity with significantly higher capital, there will be pressure on return on equity (RoE),” he said adding the banks would have to increase productivity in order to protect their RoE.

Basel-III norms, proposed to be implemented from the beginning of 2013 till 2017, require the equity capital of a bank to be not less than 5.5% of risk-weighted loans, as per the draft guidelines issued by RBI.

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Steep spectrum price recommended; tariff may rise; companies slam TRAI

TRAI has recommended base price of Rs3,622 crore for a megahertz of spectrum at pan-India level which is around 10 times higher than the price for 2G licences in 2008 when A Raja was the telecom minister

New Delhi: The Telecom Regulatory Authority of India (TRAI) proposed a steep minimum price for auction of 2G telecom spectrum, setting off fears of a hike in mobile phone tariffs which are at present among the cheapest in the world, reports PTI.

TRAI recommended base price of Rs3,622 crore for a megahertz of spectrum at pan-India level which is around 10 times higher than the price for 2G licences in 2008 when A Raja was the telecom minister.

According to TRAI recommendations, a minimum of 5 Mhz should be allotted which would mean that a pan-India spectrum in 1800 MHz band will cost Rs18,000 crore. The reserve price is five times the base price of Rs3,500 crore for 3G auction.

Operators slammed the recommendations saying they are “arbitrary, regressive and inconsistent” and will hurt further investment in the sector and expansion in rural areas.

New operator Uninor whose licences has been cancelled by the Supreme Court, said, “... some of these recommendations will create severe negative impact on the entire industry. It is up to the political leadership of India to now ensure that gains of the past few years of affordable phone calls for India's people are not undone.”

“The industry was looking forward to reasonable spectrum reserve price recommendations from TRAI in the light of the government’s own articulated policy directions on affordability and rural penetration,” telecom associations COAI and AUSPI said in joint statement.

TRAI chairman JS Sarma said the recommendations should not lead to a hike in tariff and if warranted take necessary action will be taken. “We have already issued consultation paper on forbearance of tariff,” he added.

When asked Mr Sarma said, “Auction is open for all.”

Telecom secretary R Chandrashekhar said the industry should not look at just the initial price. There are many relaxations too, he added

“TRAI has relaxed payment condition. Only 33% payment has to be made on winning of spectrum initially. Rest of the payments has to be made over years. Also TRAI has relaxed spectrum usage charge to 1% which ranges between 3% and 8%,” Mr Chandrashekhar said.

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