Four retailers will be approaching various High Courts across the country to seek a stay order on service tax on commercial rentals
Four retailers will be approaching various High Courts across the country to seek a stay order on the service tax on commercial rentals that was imposed in this year’s Budget by finance minister Pranab Mukherjee. According to industry sources, the four retailers are Shopper’s Stop, Lifestyle, More and Reliance Retail Ltd.
The Delhi High Court had granted a stay in April 2010 in favour of Home Solutions Retail India Ltd on recovery of service tax under the newly amended Section 65 (105) (zzzz) under “Renting of Immovable Property Service”, of which the amendment was made retrospective with effect from 1 June 2006 by the Finance Act, 2010.
This ruling has encouraged other retailers also to follow the same procedure to relax the service tax on commercial rentals.
The “activity of renting itself is a taxable service,” Mr Mukherjee had said while announcing the 10% tax, the second attempt to impose the levy. It had first been introduced by then finance minister P Chidambaram in his 2007-08 budget proposal when he imposed a 12% service tax on commercial rentals.
“We haven’t approach a High Court as yet but we are contemplating it. In the next few weeks we will be approaching a High Court where our operations are impacted the most,” said Thomas Varghese, chief executive officer, Aditya Birla Retail Ltd.
While granting a stay on service tax for Home Solutions Retail India, the Delhi HC said that service tax is a tax on value addition provided by a service provider. If there is no value addition, there is no service. Renting of immovable property, by itself, does not entail any value addition and therefore cannot be regarded as a service. If there is some other service provided along with renting of immovable property, then any such other service would be covered under Section 65 (105) (zzzz).
The Retailers Association of India (RAI) will help these retailers to file the litigation. “RAI is helping its members to take the cases to court. The service tax impacts retail more than anyone else. Currently retailers pay 10%-12% of the turnover as rentals and the service tax is affecting them by 10.2%. On total turnover, the retailers might pay 1%-1.2% as service tax. Most retailers make a profit between 2%-4%. The government will take away half of the profit,” said Kumar Rajagopalan, chief executive officer, RAI.
He further added, “It was fine if goods and services tax (GST) was implemented in the country—then the service tax can be set off against sales tax. Retailers are already paying value-added tax (VAT). Most retail outlets are on leased spaces, they have to pay service tax. It is difficult for retailers to survive. Retailers are affected by VAT and service tax because the government is still not able to implement GST and retailers are landing in trouble.”
Reliance Retail declined to comment on any such development while Shopper’s Stop is planning to move court. “All the retailers are planning a similar action,” said Govind Shrikhande, president and CEO, Shopper’s Stop.
All listed entities will have to dilute at least 5% additional equity annually till they reach the threshold limit of 25%
The government today made it mandatory for listed companies to raise public shareholding to 25%, with at least 5% dilution a year, a move that would attract more investors and check share price manipulation, reports PTI.
In keeping with the budgetary promise, the finance ministry amended the relevant regulations to the effect that "the minimum threshold level of public holding will be 25% for all listed companies."
Accordingly, all listed entities would have to dilute at least 5% additional equity annually till they reach the threshold limit of 25%. And fulfilment of this condition would be must for them to remain listed.
The new rules were announced shortly after close of stock market. The BSE Sensex, which rose by 95 points today on top of a 450-point rally in past two days, could come under pressure on Monday, analysts said.
For a company seeking listing, it would have to dilute 25% in one go in case the issue size is just up to Rs4,000 crore. However, those already in the process of going public and have filed draft prospectus could disinvest the stipulated 10% and later meet the condition notified today.
The decision on mandatory increase in public exposure of a company to 25% had been hanging fire for more than a year due to differences the market regulator Securities and Exchange Board of India (SEBI) had with the finance ministry.
While SEBI's contention was that such broad-basing would require huge funds, which some estimates pegged at over Rs2 lakh crore, the government was firm on enforcing the decision announced in the 2009-10 budget as an effective means to check price manipulation by promoters.
A top government adviser on financial sector and Housing Development Finance Corporation (HDFC) chairman Deepak Parekh told PTI last week that the increased public exposure was one of the effective ways to tackle the problem of over-pricing of public issues.
"Tell me one IPO that has succeeded," asked Mr Parekh, who heads the Primary Market Advisory Committee of market regulator SEBI.
Elaborating, Mr Parekh said: "Our issuers (entities coming out with public offers) don't want to leave money on the table. They want to maximise the price. You need to have a heart to give money and let others make money."
The finance ministry had come out with a discussion paper in February 2008 and was to complete the discussion in May that year, but the same could not happen on account of divergence of views. Thereafter, finance minister Pranab Mukherjee came out with the proposal while presenting the 2009-10 budget in July 2009.
The argument was that larger the number of shares and the number of shareholders, the less is the scope for price manipulation.
At present, most companies dilute just 10% stake and the shares tend to trade at a premium.
The regulator is working on guidelines which will require debt schemes to have a T-bill or a G-security rate as their first benchmark; industry experts have mixed views on SEBI’s latest move
Market regulator Securities and Exchange Board of India (SEBI) is looking at realigning the benchmark of debt schemes. This move, according to SEBI, will provide a better comparison between absolute returns of a scheme and the benchmark to retail investors. The regulator has proposed that the first benchmark of all debt schemes has to be either a one-year tenured Treasury-bill (T-bill) rate or ten-year Government-security (G-Sec) rate depending on the maturity of the scheme. The second benchmark would remain the same as chosen by the fund house.
Currently short-term and ultra short-term debt funds are benchmarked to Crisil ST Bond and Crisil Composite Bond Fund Index.
However, some industry experts believe that changing the benchmark of debt schemes will be of little relevance. “These benchmarks are good and robust indices and the composition of these indices broadly reflects the asset allocation of the funds in the categories. For example, a Crisil Liquid Index would comprise a mixture of treasury bills, certificates of deposit (CDs) and commercial paper (CP) and other money market instruments, which is the broad category of assets that liquid funds invest in. So the current indices, which are used as benchmarks, are better suited as performance indicators rather than T-bills and govt securities. But since SEBI is proposing these as additional benchmarks, investors are given additional tools to evaluate performance,” said Ganti N Murthy, head-fixed income, Peerless Mutual Fund.
The 364-day T-bill is currently trading at 5.22% at the last cut-off and the 10-year 2019 expiry G-Sec rate is around 8.09%.
“T-bill or 10-year G-Sec would be a better benchmark. It may not be a technically right benchmark but it would be useful as retail investors have limited knowledge on debt funds. A lay investor can understand T-Bill or 10-year G-Sec from any financial newspaper,” said Vivek Rege, CFP, VR Wealth Advisors Pvt Ltd.
Besides, the regulator has also proposed to keep the expense ratio of debt funds at 1% by doing away with different expense slabs.
Debt funds typically invest in fixed-income instruments like government securities, corporate bonds, certificates of deposit, debentures, etc.
“There are advantages and disadvantages in using government securities and treasury bills as benchmarks. I think SEBI wants to use these as benchmarks as these are the risk-free rates, which are available in the market. But since most funds invest in a mix of both treasury bills/govt securities and corporate paper that is priced at a spread over and above government paper, these funds would always show a better return than these benchmarks. In a way, one can say all the funds have beaten the benchmark in performance. For them, the standard benchmark proposed may be more useful,” adds Mr Murthy.
Some experts believe that SEBI’s plans are in the right direction.
“I personally understand a Crisil benchmark and its relevance in benchmarking, but we should agree that a mutual fund is a product made for a layman, and for him to understand and appreciate a Crisil benchmark would require a higher investor literacy, which is absent,” added Mr Rege.