Retrospective amendments should be avoided: Plan panel deputy chairman

“I am aware that there has been a very negative reaction. I am sure the finance minister is also aware of it... So as I said, most people tend to regard retroactive amendment as undesirable,” Planning Commission deputy chairman Montek Singh Ahluwalia told a business TV channel

New Delhi: Planning Commission deputy chairman Montek Singh Ahluwalia on Sunday opined that finance ministry not reopening the Vodafone case based on amending the I-T Act would give assuring signals and said generally changes to laws should not be done retrospectively, reports PTI.

When asked in Karan Thapar’s Devil's Advocate programme on CNN-IBN whether it would not help the situation if the finance ministry were to announce that they will not reopen the Vodafone case on the basis of amending the law, Mr Ahluwalia said, “I am sure, it would.”

Mr Ahluwalia further said, “I think what they (finance ministry) have done is, dominantly, to change the law. And I think objectively that particular change is not only an appropriate one, it is something they have signalled in the DTC.”

“... as a general rule I agree with you one should avoid retrospective amendment (in laws),” he added.

Finance minister Pranab Mukherjee in his Budget has proposed amendments in the Income Tax Act with retrospective effect from 1962 to bring into net overseas deals concerning domestic assets.

As per the proposed amendments, all persons, whether residents or non-residents, having business connection in India, will have to deduct tax at source and pay it to the government even if the transaction is executed on a foreign soil.

The amendments, once carried out, will have implications on Vodafone which won the Rs11,000 crore tax dispute case against tax authorities in the Supreme Court. It will also impact other similar cases involving taxes to the tune of about Rs30,000 crore. 

Meanwhile, the finance ministry today allayed fears of negative impact of the proposed amendments on foreign direct investments.

“The apprehension that the retrospective amendments would create negative sentiment for FDI is not correct. FDI comes when there is profitability, FDI does not come only on account of zero tax,” finance secretary RS Gujral told industry leaders here.

About the impact of the proposed amendment on Vodafone case, Mr Ahluwalia said, “I do not want to comment on the impact on any particular company. I think ... it is not only appropriate one, but something we have signalled in the proposed DTC. We are going to do that anyway.”

In the Vodafone case, the Supreme Court of India had held that the Income Tax Department does not have the jurisdiction to levy withholding tax for its $11 billion acquisition deal with Hutchison Essar in 2007.

When pointed about HDFC chairman Deepak Parekh’s criticism of the proposed amendment, Mr Ahluwalia said, “I am aware that there has been a very negative reaction. I am sure the finance minister is also aware of it... So as I said, most people tend to regard retroactive amendment as undesirable”.

On the impact of this move on foreign investment flows, he said, “Whenever you have retrospective amendment which affects an individual, he will certainly feel that he has been treated unfairly.”

However, he allayed fears that this will impact the flow of foreign funds into the country. “I think that foreign investors should have absolutely no doubt in their mind that the government does not intend to change some of the basic conditions retrospectively.”

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With no tax on diesel vehicles, auto makers mull expansion

“There has been no mention of an additional tax on diesel vehicles or on the existing differential pricing of diesel in the Budget...I would therefore assume that diesel vehicles will not be treated any differently,” M&M president (Automotive and Farm Equipment Sectors) Pawan Goenka told reporters

New Delhi: As the Budget has spared diesel vehicles from the much feared additional tax, auto firms such as M&M (Mahindra & Mahindra), Hyundai and Maruti Suzuki are expected to press ahead with plans to expand engine capacities in this segment, reports PTI.

Before the Budget 2012-13 was presented on Friday, Society of Indian Automobile Manufacturers (SIAM) had said that fear of diesel tax and lack of a clear roadmap on diesel pricing led auto companies to hold back investments of more than Rs3,000 crore in India.

At present, petrol is deregulated but diesel prices are still decided by the government, which provides subsidy on the fuel that is used by the transportation sector and impacts the cost of several essential goods and services.

Rising petrol prices have increased manifold the demand for diesel vehicles over the past couple of years. Hence, of late, there has been strong demand from various quarters for an additional tax on diesel cars.

“There has been no mention of an additional tax on diesel vehicles or on the existing differential pricing of diesel in the Budget...I would therefore assume that diesel vehicles will not be treated any differently,” M&M president (Automotive and Farm Equipment Sectors) Pawan Goenka told PTI.

He said this will encourage companies that had held back investments on new diesel engine capacities, awaiting clarity on the issue, to go ahead with their plans.

“As far as M&M is concerned, whatever we have held back on increasing production capacity of diesel vehicles, we will be going ahead now,” Mr Goenka said.

While he did not specify how much investment was held back on diesel expansion, the company had announced that till FY13-14 it will invest Rs5,000 crore on new products and capacity.

Hyundai Motor India (HMIL), which had put on hold its Rs400 crore diesel engine plant last year, said it is evaluating the situation after the Budget.

“We have to weigh the pros and cons as there has been no mention of diesel tax in the Budget. Within two weeks we will be taking a decision on whether we should go ahead with our diesel plant or not,” a spokesperson for HMIL said.

The plant was envisaged to have an annual capacity of 1.5 lakh units for three types of engines—1.1 litre, 1.4 litre and 1.6 litre for the domestic market.

Maruti Suzuki India (MSI), which has also been awaiting clarity on the issue, said those companies with diesel manufacturing capacity would be pleased with the Budget’s silence on petrol-diesel price differential.

Asked if MSI would consider going ahead with the plans for increasing diesel engine capacity, company chairman RC Bhargava said: “We can only say after the project report is completed and considered by the management.”

When asked if it was encouraging for automakers that diesel tax has not been imposed, Mr Bhargava said: “Yes, it is encouraging for those companies with diesel manufacturing capacities but if I were a petrol car maker, why should I be discriminated?”

Stating that diesel prices should also be made market driven like petrol, he said it is not yet clear how long the current quantum of disparity in the prices between the two fuels would continue.

“If there has to be a differential, the government must spell out clearly by how much, so that we can plan accordingly,” Mr Bhargava said.

SIAM said leaving diesel vehicles from additional tax was one of the very few positives for the auto industry in the Budget.

“At least diesel vehicles have not been attacked. There seems to be a clarity on the issue for the time being. I think this may encourage our members to go ahead with their planned investments on diesel engine plants,” SIAM senior director Sugato Sen said.

Earlier, SIAM had said many of its members were still unclear whether they should invest on diesel technology or not in India as there is no clarity on how the fuel will be priced in future.

It had said firms that have held back investing on diesel engine plants include Maruti Suzuki, Hyundai Motor India, Ford India, General Motors India and Tata Motors.

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Ailing MFIs hail move to bring in central law

“Banks had virtually stopped funding following the developments in Andhra Pradesh. But now, as a result of the clarity on the regulatory front, I am sure bank funding will resume,” chief financial officer of the country’s only listed microlender SKS Microfinance, Dilli Raj told reporters

Mumbai: The crisis-ridden microfinance sector has welcomed the budgetary proposal to table the new MFI Bill, saying the regulatory clarity will help in the resumption of bank funding, reports PTI.

“Banks had virtually stopped funding following the developments in Andhra Pradesh. But now, as a result of the clarity on the regulatory front, I am sure bank funding will resume,” chief financial officer of the country’s only listed microlender SKS Microfinance, Dilli Raj, told PTI.

Finance minister Pranab Mukherjee said in Budget speech that he will be tabling the Micro Finance Institutions (Development and Regulation) Bill in the current session of Parliament.

At present, the microfinance sector is governed by state laws in Andhra as well as the Reserve Bank of India (RBI) regulations.

Mr Raj said that coming from the Centre, the Bill will override the AP law, which has hurt the sector badly, and hence bring in regulatory clarity.

“The Bill will also prevent regulatory arbitrage and promote healthy development of this industry,” the chief executive of the sectoral umbrella body MFIN, Alok Prasad, said.

Mr Raj said the legislation will also help the sector recover its dues from Andhra Pradesh, its biggest market, and added that SKS alone has been forced to write off loans of over Rs9,000 crore in the state.

Problems for the sector started in October 2010, following a spate of suicides by borrowers in Andhra due to alleged pressure from recovery agents appointed by MFIs (microfinance institutions). The AP government then passed a law which gave overarching powers to the state and imposed a slew of measures to control MFIs’ activities, including capping their lending rates.

“The Bill is likely to rectify the lack of uniformity in regulation, eliminate state level interventions and enable closer monitoring of this ailing sector,” consultancy firm Ernst & Young India partner Viren H Mehta said.

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