Global bodies want US to take up Vodafone issue at IMF meeting

“We strongly encourage you to raise these concerns (retrospective amendment to I-T Act and GAAR provisions) and seek clarity on the scope and international consistency of the proposals during the upcoming IMF and World Bank meetings,” about a dozen industry associations said in a letter to US Treasury Secretary Timothy Geithner

New Delhi: Batting for Vodafone, several US-based industry associations have asked Washington to take up the controversial issue of amending the Income Tax (I-T) Act with retrospective effect with India at the upcoming IMF-World Bank Spring Meetings, reports PTI.

“We strongly encourage you to raise these concerns (retrospective amendment to I-T Act and GAAR provisions) and seek clarity on the scope and international consistency of the proposals during the upcoming IMF and World Bank meetings,” about a dozen industry associations said in a letter to US Treasury Secretary Timothy Geithner.

Finance minister Pranab Mukherjee, who is in the US to participate in the Fund-Bank Spring Meetings later in the week, is also likely to hold bilateral talks with Mr Geithner.

The issue pertains to a proposal in the Finance Bill 2012 which seeks to amend law to retrospectively tax cross-border transactions dating back to 1 April 1962.

The move follows the Supreme Court ruling that Vodafone wasn’t liable for taxes (about Rs11,000 crore) stemming from its 2007 acquisition of Hutchison's stake in Hutchison-Essar.

The letter written by industry associations, including US-India Business Council, said “the unprecedented nature of this amendment sets a particularly poor precedent and, consequently, we believe it essential that the US Treasury speak out so that other countries might be dissuaded from enacting similar policies”.

As regards the General Anti Avoidance Rules (GAAR), the industry associations have said that unclear anti-abuse rules would have negative implications for the companies investing in India.

“The proposals, which include an unprecedented period of retroactive tax collection, a broad and unclear general anti-abuse rule (GAAR) and an onerous tax on indirect stock transfer, are inconsistent with international tax policy and standards and result in significant erosion of the rule of law,” the letter said.

The letter was also marked to US Secretary of State Hillary Clinton, US Trade Representative Ron Kirk and Commerce Secretary John Bryson.

In the Finance Bill 2012, the government has proposed to include GAAR provisions, which is aimed at targeting deals whose purpose is tax avoidance.

Such amendments, the letter said, “are inconsistent with India’s specific obligations to the US under the current bilateral tax treaty.

“Furthermore, the unilateral definition of treaty terms may significantly alter the benefits and burdens of the existing Income Tax Treaty to the detriment of the US”.

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ECB norms for power companies to be eased within 7 days

Joint secretary in finance ministry Thomas Mathew said the power sector would now be able to raise ECBs for refinancing their rupee debt up to 40%, “provided the remaining 60% of the ECB raised is utilised for investment in a new project”

New Delhi: Power companies in a week’s time will be allowed to use up to 40% of external commercial borrowings (ECBs) to refinance their rupee debt as against the existing limit of 25%, reports PTI.

Also, the ECB route for capital expenditure on the maintenance and operations of toll systems in the roadways and highways sector will be opened within seven days.

“RBI is expected to issue relevant notifications within seven days giving effect to these Budget announcements,” joint secretary in finance ministry Thomas Mathew told reporters.

With an aim to address the “immediate financing concerns” of the civil aviation sector finance minister Pranab Mukherjee in his Budget speech had also proposed to permit up to $1 billion ECB for working capital requirements of the airline industry for a period of one year.

To queries on timeline for the ECB for airlines, Mr Mathew said a decision in this regard is expected “next week ... (probably on) 26th April”.

So far, airlines were allowed to raise foreign capital only for import of capital equipment like aircraft.

Giving details of liberalisation of the ECB norms for the power sector, Mr Mathew said the segment would now be able to raise ECBs for refinancing their rupee debt up to 40%, “provided the remaining 60% of the ECB raised is utilised for investment in a new project”.

In view of the increasing capital requirement of the power sector, finance minister Pranab Mukherjee had, in his Budget Speech, announced liberalisation of the ECBs for refinancing of the rupee debt for the sector.

The decision on allowing ECB for toll systems is likely to provide a fillip to the road sector and augment avenues for financing of such projects.

It is expected to provide an additional source of low-cost capital and encourage greater investment in road construction projects. Besides, it may further encourage public private partnerships in the sector.

ECB, which totalled $35.9 billion in 2011-12, is considered attractive as cost of raising the loan is lower than that of domestic borrowing.

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RBI notifies cut in bank rate to 9%

The notification follows the announcement made by RBI governor D Subbarao in the annual credit policy which was unveiled on Tuesday

Mumbai: The Reserve Bank of India (RBI) on Wednesday issued a notification to reduce the bank rate or the interest the banks and financial institutions pay to the central bank on borrowed funds to 9% from 9.5% now, reports PTI.

“The Reserve Bank of India (RBI) has decided to lower the bank rate to 9% per annum from 9.5% per annum with effect from 17 April 2012,” the RBI said in a statement.

The notification follows the announcement made by RBI governor D Subbarao in the annual credit policy which was unveiled on Tuesday.

In line with 0.5% cut in short-term lending (repo) rate, the RBI also reduced the bank rate to 9%.

The RBI decided to reduce the benchmark repo rate to 8% from 8.5%, after a gap of three years, to promote growth which during 2011-12, which slipped to a three year low of 6.9%.

The central bank has pegged the GDP (gross domestic product) growth rate for the current fiscal at 7.3%.

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