Sensex Stays in the Green; IT Stocks Drag

Thu, 5 Jan 01:30 pm

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After opening the day on a positive note, the Indian share markets have continued to trade above the dotted line. All Sectoral indices with the exception of stocks in the IT sector are trading in the green. Stocks in the Metal sector are leading the gains.

The BSE Sensex is trading up by 216 points (up 0.8%) and the NSE Nifty is trading up 74 points (up 0.9%). Meanwhile, the BSE Mid Cap index is trading up by 1%, while the BSE Small Cap index is trading up by 0.9%. The rupee is trading at 67.84 to the US$.

The 8th meeting of the Goods and Sales tax (GST) council held over a two-day period remained inconclusive, effectively ruling out the implementation of GST from 1 April.

The centre on Wednesday said that it will wait for consensus to emerge on GST laws and will not push for a decision by vote despite the threat of a delay in rolling out the new tax regime from April.

However, both the centre and the states made headway on the integrated GST bill at the two-day meeting, though the contentious issue of sharing of administrative powers was not taken up.

Two major issues -the proposed levy of tax on sale in the high-seas and dual control over entities with annual turnover of less than Rs 15 million-have held up the finalisation of the draft laws. The laws need to be cleared by the state legislatures and Parliament before GST can be rolled out.

Agreement on the crucial issue of 'dual control', which envisages a division of control over tax assessees between the states and the centre under the proposed GST and is at the heart of the wrangling between the two sides.

Some states have now raised a new issue of the rate split under GST. And are advocating a split in the rates between the states and the centre should be in the ratio of 60:40 rather than the previously proposed equal split.

With the deadlock between the centre and the states continuing over multiple issues, it is unlikely the GST will be rolled out on its initial deadline of 1 April. The GST council is set to meet again on 16 January.

GST, when implemented will bring in a host of regulations to enable transparency in the tax regime. This will no doubt lead to added costs for implementation of regulations. Unorganized players may bear the brunt of added costs of compliance and may find it difficult to comply with the GST norms and compete with the well-established organised players.

Sectors that can benefit from GST

The implementation of GST is bound to bring more companies under the new tax regime, thus providing a level playing field to organized players forming part of sectors having a high proportion of the unorganized segment.

GST will subsume a host of indirect taxes levied by the center and the states, including excise duty, service tax, value-added tax, entry tax, luxury tax and entertainment tax. A transparent tax regime may very well be beneficial to the investors, individuals and businesses.

It all paints a rosy picture, but in the long term it may not be the case. Vivek Kaul has a special report ready, which will help you understand how GST actually affects you. You can download this special report - GST & You, for free right here.

Moving on to news about the economy. According to an article in a leading financial daily, Foreign Portfolio Investors (FPIs) have proposed to the government that the threshold limit for triggering indirect taxation provisions be raised from 5% to 26%.

The Central Board of Direct Taxes (CBDT) on December 21 clarified that even FPIs, private equity and venture capital funds would fall under the ambit of indirect transfer provisions, the law which became contentious between telecom major Vodafone and government.

To put it simply, the law as it stands states that all FPIs having more than 50% of assets under custody in India and owning over 5% stake in any listed entity would incur tax under indirect transfer provisions. This is in addition to the securities transaction tax and short term capital gains tax.

As per this, overseas investors putting money into large offshore funds would have to forego a slice of their gains while selling or redeeming the units they hold. Most FPIs invest through special purpose vehicles that are India focused with more than 50 per cent assets invested here.

FPIs propose that the threshold limit of 5% to be raised to at least 26%, as it would keep most of the FPI transactions beyond the gambit of the law. The FPIs further proposed that there should be no Tax deducted at source (TDS) obligations levied on them, and that corporate restructuring should not trigger indirect transfer provisions.

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