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Friday, November 27, 2015

Sebi to Set Rules, Offer Sops For Green Bonds

Move Aimed at Encouraging Domestic Listing of Such Bonds

The Securities and Exchange Board of India (Sebi) is set to unveil rules on monitoring the end use of green bonds, and might propose incentives for companies to issue them at its board meeting on November 30 (next Monday).

“Sebi is working on regulations that will incentivise companies to launch green bonds. We would like these bonds to be listed on the domestic exchanges instead of on overseas exchanges,” said a source privy to the development.

“Regulations by Sebi are likely to be followed by regulations by the Reserve Bank of India (RBI) so that they can offer competitive rates,” said another person familiar with the matter. Neither source wished to be named because no official statement had been made yet. An e-mail to a Sebi spokesperson remained unanswered.

The move will enable Indian companies to raise capital at home through this instrument. It will also be a major step towards the government’s commitment on reducing India’s carbon footprint.

Green bonds invest in environment-friendly projects in areas like renewable energy, waste management, clean transportation, sustainable water management and climate change adaptation.

Lack of regulation has forced a majority of Indian players to tap the market abroad for green bonds.

Earlier this year, lenders, including YES Bank and Export Import (Exim) Bank, did green bond issuances  abroad. IDBI Bank announced on Thursday that it had raised  Rs 2,310 crore via green bonds in Singapore. Companies such as ReNew Power and Hindustan Powerprojects had to launch these bonds by tying up with financial institutions instead of launching them on their own due to lack of regulations or a special dispensation for these bonds.

The clean energy arm of Hindustan Power Project entered the credit-enhanced bond market with an issue fully underwritten by YES Bank. ReNew Power Ventures was the first Indian company to issue credit-enhanced green bonds, raising $68 million, backed by Goldman Sachs.

“Lenders find it feasible to list on overseas exchanges because there are classes of investors there that invest in these bonds,” said Ajay Manglunia, head of fixed income, Edelweiss Securities.

There are no incentives associated with these bonds for Indian issuers or investors, apart from being infrastructure bonds that do not attract statutory banking reserve requirements.

Experts are viewing this as a first step towards the government’s aim of 175 gigawatt of renewable energy in the country by 2022.  According to an HSBC report, this ambition might be too steep. To reach a new climate agreement at the Paris COP21, India would need to invest at least $2.5 trillion by 2030, The Financial Times recently reported.

“These investment requirements can be fulfilled by offering incentives on green bonds to both foreign and domestic investors,” said an industry expert.

“Green bonds raised approximately $12.9 billion during the second quarter of 2015, bringing year-to-date totals to roughly $19.2 billion. Based on first-half 2015 issuance volumes, and considering second-quarter issuance momentum as well as expectations of continued offerings in China and India, green bond volumes for 2015 are highly likely to exceed — and could even double — last year’s record volume of almost $37 billion,” said a Moody’s report in August.
What are green bonds?
Structured like ordinary bonds but will invest in only those companies and projects that help in reducing carbon footprint

Projects they invest in
Renewable energy, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation, clean transportation, sustainable water management and climate change adaptation

Special dispensations
No special dispensations allowed, apart from them being under RBI’s infrastructure bond category. Do not attract statutory requirements such as CRR & SLR

Funds raised by these bonds globally
$12.9-billion raised during the second quarter of 2015, bringing year-to-date totals to roughly $19.2 billion. Last year, fund-raising globally touched a record high of $37 billion

Indian issuances and fund-raising
YES Bank issued the first-ever green infra bonds in February this year. It raised Rs 315 crore through the issue of green infra bonds to IFC on a private placement basis. Exim Bank raised Rs 3,330 crore in March via green bond sale. IDBI plans to mop up Rs 2,331 crore via green bonds

Reference -

Wednesday, November 25, 2015

Market Verdict: Rajan to Hold Interest Rate

Market Players See no Change in CRR Either, Expect RBI to Wait for Fed Move

Bankers, economists and market participants expect the Reserve Bank of India (RBI) to maintain status quo in its fifth bi-monthly policy review for 2015-16, scheduled on December 1.

All 12 participants in a BS poll said RBI Governor Raghuram Rajan would be in no mood to tinker with the interest rate or even the cash reserve ratio. He would ideally wait to see the impact of a possible rate hike by the US Federal Reserve on December 15-16, possibly the first by the world’s largest economy since June 2006.

RBI has, since January this year, cut its policy rate four times to bring it down from eight per cent to 6.75 per cent. In the fourth monetary policy review on September 29, the central bank surprised the market by a 50 basis point (bps) cut. One bps is a hundredth of a percentage point. The repo is the rate at which the RBI lends to banks.

In his monetary policy statement, Rajan said the central bank’s stance would continue to be accommodative but the focus of monetary action for the near term would “shift to working with the government to ensure that impediments to banks passing on the bulk of the cumulative 125 bps cut in the policy rate are removed”.
Market verdict: Rajan to hold interest rate
RBI, he said, would continue to be vigilant to keep the economy on its target disinflationary path. RBI’s target of six per cent retail inflation by January 2016 is achievable although prices of food, especially of pulses, remain elevated.

Prices of pulses pushed consumer price index-based inflation to a four-month high of five per cent in October and Rajan recently cautioned the challenge was to avoid a wage-price spiral.

“We are not really targeting that first round effect on food; we are worried about the second round effect on wages and are trying to make sure that is contained. Unfortunately, that sometimes means slower activity,” Rajan said on November 20, at an event in Hong Kong.

Banks, too, have not done their bit in passing on interest rate cuts, and further rate cuts by the central bank are unlikely to help lower the borrowing cost in the economy.

“Purely from a food inflation perspective, it is quite worrisome. Kharif sowing is flat and the prospect for rabi crops is also not rosy after three consecutive negative crop cycles,” said Rupa Rege-Nitsure, chief economist at L&T Financial Services.

Inflationary expectations continue to remain high, tying the hands of the RBI.

“There has been moderate transmission of past easing and uncertainty related to the inflation outlook for 2016. The impending rate hike by the US Federal Reserve further reduces the possibility of monetary easing by the RBI. There may not be any further rate cut in the current financial year,” said Aditi Nayar, senior economist at rating agency ICRA.

The relief comes from a moderate price outlook for commodities, particularly oil. But factors like the Seventh Pay Commission and even the slowdown in China are concerns for the RBI.

“China is emerging as a big factor. The RBI will watch how the rebalancing takes place in China before taking a call on rates here,” said Gaurav Kapur, India economist at the Royal Bank of Scotland.

In an interview with Hong Kong-based South China Morning Post, Rajan said the slowdown in China was affecting global economies, including India.

“India, being a commodity importer, has been helped a bit by cheaper commodities. So the impact has not been as bad as it could have been. Still, on the whole, we have been adversely affected by the Chinese slowdown because China’s slowdown has impacted global growth and India is very well integrated with the global economy,” Rajan said in the interview.

Most poll participants said the central bank had room to accommodate another 50 basis point rate cut. But that may not happen in this financial year as the central bank will watch how the markets react after the Fed rate hike and how the central government implements the pay panel recommendations without widening its fiscal deficit.

Aditya Puri, managing director, HDFC Bank said in an event on Tuesday (not part of BS poll) that policy rates are headed south, given low inflation and falling commodity prices. “It is difficult to say whether it will be in this policy or the next, but we could see further reduction,” Puri said.

12 institutions — including State Bank of India, IDBI Bank, Royal Bank of Scotland, Canara Bank, Deutsche Bank, Birla Sun Life, L&T Financial Services, Axis Bank, Bank of America-Merrill Lynch, IndiaFirst Life Insurance, ICRA Ltd, Max Life Insurance — participated in the poll

Reference -

Monday, November 23, 2015

SC Asks Vodafone to Pay Rs 2,000 Crore For Merger

Order was made in govt's appeal against TDSAT's interim order in disputes over spectrum usage charge and other issues

The Supreme Court on Monday directed the department of telecom (DoT) to approve the merger of four firms with Vodafone Mobile Services upon the latter paying Rs 2,000 crore to the government.

The order was made in the government’s appeal against the interim order of the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) on spectrum usage charge and other issues, including the merger of Vodafone-related firms.

In its order, TDSAT had stated no amount was payable till resolution of the disputes. The government moved the Supreme Court against the order, arguing the company had not followed the guidelines for merger. It contended the merger could not be approved till the dues of the companies were cleared.

The Supreme Court Bench headed by J S Khehar heard the government’s appeal and passed the order, asking TDSAT to speed up the hearing in view of the huge amounts involved.

The government’s demand against Vodafone Mobile is Rs 6,678 crore under five heads. However, Vodafone has disputed the amounts and agreed to pay Rs 1,773 crore, which is outside the TDSAT’s purview if the merger was approved.

The Supreme Court made it a round figure of Rs 2,000 crore. The order added that in case Vodafone succeeded ultimately in its petitions before the tribunal, the government should refund the amount to the company with interest determined by the tribunal.

The government argued that according to DoT guidelines, approved by the Cabinet, all liabilities should be cleared before any merger takes place. The company moved the tribunal and got stay orders. Government counsel Narasimha contended this is the usual course adopted by telecom companies.

When contacted, Vodafone India refused to comment, saying the matter is sub judice.

There are several cases before the tribunal in which stay orders have been obtained by them and then the cases are not decided for decades, he added. The government needs money immediately and it cannot be run on undertakings, the counsel said.

Vodafone's counsel K K Venugopal told the court that the operation was mainly an internal restructuring of the telecom companies related to each other and there was no transfer of spectrum from one area to another. Several circles are involved in the operation, he said.

Vodafone got conditional approval for merger of various entities from DoT on December 8, 2014, subject to certain payments. However, the British telecom major represented that such amounts were not payable to DoT. The DoT thereafter issued revised letter on May 6, 2015 seeking certain undertakings instead of payments for AGR (adjusted gross revenue) and spectrum usage charges.

However, DoT insisted on payments for Tamil Nadu, one-time spectrum charge. Vodafone filed a petition in TDSAT and the TDSAT passed an interim order on October 19, 2015 directing DoT to provisionally allow merger of licenses subject to petitioners giving undertaking to DoT and TDSAT that they will pay the amounts as per the final judicial decision. Accordingly, Vodafone furnished an undertaking to DoT and TDSAT on October 30, 2015, following which the telecom major went to court.

Moreover, the government and Vodafone are getting closer to settling their eight-year tax spat over the 2007 Hutch-Vodafone cross-border deal. The British telecom major, which had sought arbitration under the Indo-UK bilateral investment protection treaty in June, has formally approached the finance ministry for conciliation.


    The order was made in the government’s appeal against the interim order of the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) in disputes over spectrum usage charge, including merger of Vodafone-related firms

    The government’s demand against Vodafone Mobile is Rs 6,678 crore under five heads. However, Vodafone has disputed the amounts and agreed to pay Rs 1,773 crore, which is outside the TDSAT’s purview if the merger was approved

    The government argued that according to DoT guidelines, approved by the Cabinet, all liabilities should be cleared before any merger takes place. The company moved the tribunal and got stay orders.
Reference -

Govt Looks to Curb Domestic Circulation of Black Money

To Widen Mandatory Quoting of PAN, Scope for Annual Information Returns

After cracking down on unaccounted money stashed abroad by Indians, the government is now working to curb domestic flow of black money, by plugging gaps in regulations.

At present, the Central Board of Direct Taxes (CBDT) is looking to rationalise income-tax rules; the move includes widening of coverage for mandatory quoting of permanent account number (PAN) for specified transactions. Also, it is considering expanding the scope of mandatory annual information returns (AIRs) for third-party agencies, to capture greater information, in line with the government's efforts to build a large database for checking tax evasion and the flow of black money in the economy.

"To curtail the flow of domestic black money in the economy, we are working to strengthen capture of information by rationalising two rules under the income-tax act - mandatory issuance of PAN card and the mandatory annual information returns (114B and 114E, respectively)," said a government official.

At present, quoting of PAN is mandatory for sale or purchase of any immovable property valued at Rs 5 lakh or more, purchase of any motor vehicle, and payment of bills exceeding Rs 25,000 in one go at hotels and restaurants, among other things.

The government is looking at lowering thresholds for mandatory furnishing of PAN card where they are too high, and increasing the limits where they are too low. Besides, it will add new items to the list of transactions where furnishing of PAN is mandatory. Some irrelevant transactions will be removed from that list.

In the case of AIRs, the government will likely expand the list of third-party sources for mandatory reporting (seven sources at present), and also revisit the thresholds.

"We will revisit the thresholds by lowering them in the cases where they are too high, and raise the limits in the cases where they are too low and lead to excessive information flow that we do not require - for both PAN card furnishing and AIR. We will add more transactions and third-party sources to the list for AIR and delete those that have become irrelevant. Basically, it will be rationalisation of income-tax rules," he added.

Quoting PAN is mandatory for cash deposits aggregating Rs 50,000 or more at banks, or life insurance premiums of more than Rs 50,000 a year.

There are seven categories of transactions where third-parties like banks, mutual funds and insurance companies have to report transactions by individuals to the income-tax department. For instance, if you deposit Rs 10 lakh or more in a year, the bank concerned will have to report it to the department. The department will then use this information to see if the assessee concerned files accurate returns.

A company issuing credit cards where payment against bills exceeds Rs 2 lakh in a year for a person also has to report this to the department. Similarly, mutual funds collecting Rs 2 lakh or more for sale of units by one person, companies receiving Rs 5 lakh or more against issue of shares, bonds/debentures and registrar/sub-registrars in respect of sale/purchase of immovable property exceeding Rs 30 lakh, and the Reserve Bank of India for issue of bonds exceeding Rs 5 lakh, have to report the transactions to the department.

"The move will definitely have some deterring impact on flow of domestic black money," said Rahul Garg, leader, direct taxes, PwC.

Rakesh Nangia, managing partner, Nangia and Co, said tackling of black money was a serious challenge for the government. "It is a much bigger issue domestically. The move on rationalisation of transactions and the limits will definitely address the issue to some extent," he said.

Recently, the authorities took various measures to deter those involved in circulation of black money. For instance, targeting domestic flow and generation of black money in the mining sector, CBDT instructed income-tax officials to scrutinise production details and tax returns filed by the companies engaged in mining activities, and to take appropriate action in case a discrepancy was found.

Finance Minister Arun Jaitley had pointed out in a Facebook post last month that the bulk of black money was still within India. There was a need to change the national attitude, so that plastic currency became the norm and cash an exception. "…the government is working with various authorities to incentivise this change," he had said.

Targeting the black money stashed abroad by Indians, the government had provided a three-month compliance window that ended on September 30.

During this period, declarations worth Rs 4,147 crore were made. The government later warned of stringent action against those having black money abroad on account of improved information exchange provisions with various countries.

Moves on anvil to check flow of unaccounted money


Current rule: Mandatory for sale or purchase of any immovable property valued at Rs 5 lakh or more; purchase of any motor vehicle; payment of bills exceeding Rs 25,000 in one go at hotels and restaurants

Likely change: Lowering of thresholds for mandatory furnishing of PAN card where they are too high; increasing the limits where they are too low; adding new items to the list of transactions where furnishing of PAN is mandatory


Govt will expand the list of third-party sources for mandatory reporting (seven sources at present)

Reference -


Saturday, November 21, 2015

Most Corporate Tax Breaks May Be Phased Out in FY18

Draft schedule released by CBDT says sunset clause may not be extended

The finance ministry has proposed a road map on making tax rates more competitive and proposed phase-out of most of the exemptions from the 2017-18 financial year. This is in tune with this year’s Budget announcement that the corporate tax rates would be reduced to 25 per cent over the next four years from 30 per cent at present but would be accompanied by a corresponding phase-out of exemptions and deductions.

The draft schedule for phasing out these exemptions was put in the public domain by the Central Board of Direct Taxes on Friday. It has invited comments within the next 15 days.

The road map says profit-linked, investment-linked and area-based deductions would be done away with for corporate and non-corporate tax payers.

Provisions with a sunset date would not be extended or advanced. For incentives with no terminal date, a sunset date of March 31, 2017, would be provided for commencement of the activity or for claim of benefit.

Experts pointed out that the sunset date of March 31, 2017, needed more clarity. “... where the relevant activity or project commences on or before March 31, 2017, the incomes beyond that from such activity should continue to be exempt for the period envisaged in the exemption, since commercial decisions have been initiated on that basis,” said Ketan Dalal, senior tax partner, PricewaterhouseCoopers India.
Most corporate tax breaks may be phased out in FY18
Corporate tax is 30 per cent but is effectively 23 per cent, due to many exemptions and deductions. In 2014-15 the government is estimated to have forgone revenue worth Rs 62,398 crore in corporate taxes on account of various incentives, up from Rs 57,793 crore a year ago.

Minister of State for Finance Jayant Sinha says the  government’s goal is to be able to simplify and make the tax code as predictable as possible.

The sunset clause would cover tax exemptions for development, operation and maintenance of infrastructure facilities or development of special economic zone (SEZ) export unit. It would also cover commercial production of natural gas in blocks licensed under the fourth round of auctions for coal bed methane, the eighth round of the New Exploration and Licensing Policy and commercial production of mineral oil from blocks licensed under a contract awarded up to March 31, 2011.

Experts pointed out that the move will adversely impact investments into the SEZs that already lost sheen after imposition of the minimum alternate tax in 2011. “As far as phasing out of tax holidays is concerned, the only worrying element is the future of SEZs. SEZs had ceased to be popular since MAT had been imposed on them; but with this announcement it can be expected that there would be no further investments in SEZs,”said Neeru Ahuja, partner, Deloitte Haskins & Sells.

Amit Maheshwari, managing partner, Ashok Maheshwari & Associates, also pointed out that the move will be a dampener for SEZs.

In a setback to non-government organisations (NGOs), the road map also proposes to do away with the deductions available to NGO donors from 2017-18, which means 2018-19 assessment year, under Section 35AC of the I-T Act.

The government gives a depreciation rate up to 100 per cent on buildings, machinery, plant or furniture owned by an assessee for a business or profession. The rate would be reduced to 60 per cent from April 2017.

There would also be no weighted deduction with effect from April 2017. At present, in the case of a cold-chain facility, a warehousing facility for storage of agricultural produce, an affordable housing project or production of fertiliser, a weighted deduction of 150 per cent of the capital expenditure is allowed. The road map suggests it be done away with April 2017.

Similarly, a deduction of 200 per cent that is given for scientific in-house research would be cut to 100 per cent from April 2017. There are similar cuts proposed for donations to skill training programmes.

Meanwhile, tax deductions available for donations made to political parties and charitable institutions will continue as those were not mentioned in the draft. Also, the benefits for units set up in northeast states, Uttarakhand or Himachal Pradesh will continue.

Reference -

Thursday, November 19, 2015

7th Pay Commission Announces Bonanza for Central Govt Staff

The Commission has proposed a 23.55% hike in salary, allowances and pension for serving staff and pensioners

Chairman of the Seventh Pay Commission A K Mathur (right) submitted the 900-page report to Finance Minister Arun Jaitley, in New Delhi on Thursday
The Seventh Central Pay Commission has proposed a hefty 23.55 per cent hike in salary, allowances and pension for 4.8 million government employees and 5.5 million pensioners. If accepted, the recommendations of the commission, headed by retired judge A K Mathur, would be effective from January.

The recommended hike, contained in a 900-page report, is over 11 percentage points lower than the 35 per cent suggested by the sixth pay commission.

The panel also virtually expanded the one rank, one pay commission to all civilian central government servants, paramilitary forces and defence personnel.

The financial impact of the report, presented to Finance Minister Arun Jaitley on Thursday, would be Rs 1.02 lakh crore during 2016-17. The total salary and pension bill of the government would work out to be Rs 5.36 lakh crore in the financial year, 23.55 per cent more than the Rs 4.33 lakh crore that would have come if the commission's report was not there.

Of the total financial impact of Rs 1.02 lakh crore, Rs 73,650 crore will be borne by the General Budget and Rs 28,450 crore by the Railway Budget.

"In order to implement the pay commission recommendations, a secretariat will be set up under the expenditure secretary. The government will take a final decision, after examining the recommendations expeditiously," Jaitley said.
Bonanza for central govt staff
The total impact of the panel's recommendations would be an increase of expenditure by 0.65 percentage points to the country's gross domestic product (GDP), compared with 0.77 per cent in case of the previous pay panel.

However, finance secretary Ratan Watal was hopeful that the government would not breach its fiscal deficit target at 3.5 per cent of GDP for 2016-17.

The basic salary hike recommended is 16 per cent, while that of housing rent allowance, other allowances and pensions are 138.71 per cent, 49.79 per cent and 23.63 per cent, respectively.

Pension of the retired staff would increase 23.69 per cent at Rs 1.76 lakh crore, against Rs 1.42 lakh crore.

Since the basic pay has been revised upwards, the commission recommended that house rent allowance (HRA) be paid at the rate of 24 per cent, 16 per cent and eight per cent of the new basic pay for Class X, Y and Z cities, respectively.

The commission also recommended that the rate of HRA be revised to 27 per cent, 18 per cent and nine per cent, respectively, when dearness allowance crosses 50 per cent, and further revised to 30 per cent, 20 per cent and 10 per cent when dearness allowance crosses 100 per cent.

After receiving a lot of flak for the new pension system, the panel suggested a number of steps to improve its functioning by establishing a strong grievance redressal mechanism.

The minimum pay recommended is Rs 18,000 per month and maximum at Rs 2.5 lakh for the Cabinet Secretary. The current salary of the Cabinet Secretary is capped at Rs 90,000 a month. It proposed a consolidated pay package of Rs 4.5 lakh and Rs 4 lakh per month for chairpersons and members, respectively, of select regulatory bodies.

A revised pension formulation for civil employees, including armed central armed police force personnel as well as for defence personnel, who have retired before January 2, 2016, has been recommended.

This formulation will bring about parity between past pensioners and current retirees for the same length of service in the pay scale at the time of retirement.

The pay commission has also proposed a status quo on the retirement age of central government employees at 60 years. The chairman and other member Rathin Roy recommended the age of superannuation for all central armed forces personnel to be raised to 60 years from 58 years, another member Vivek Rae did not agree with it.

Replacing the present system of pay bands and grade pay with a new pay matrix has also been mentioned in the seventh pay commission report.

Grade pay has been subsumed in the pay matrix. The status of the employee, hitherto determined by grade pay, will now be determined by the level in the pay matrix. However, the rate of annual increment is being retained at three percent. It also recommended a fitment factor of 2.57, which will be applied uniformly to all employees.

The commission also proposed that annual increments not be granted in the case of those employees who are not able to meet the benchmark either for modified assured career progression or for a regular promotion in the first 20 years of their service.

There was no unanimity of views in case of advantages given to Indian Administrative Service and Indian Foreign Service employees for promotion vis-a-vis Indian Police Force and Indian Forest Service employees.

 Reference -

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