Sensex Remains in the Green; Realty Stocks Gain

Wed, 25 Jan 11:30 am

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After opening the day on a positive note, the Indian share markets have continued the momentum and are trading above the dotted line. All sectoral indices are trading on a positive note with stocks in the consumer durables sector and the realty sector leading the gains.

The BSE Sensex is trading up 141 points (up 0.5%) and the NSE Nifty is trading 46 points (up 0.5%). Meanwhile, the BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading up by 0.7%. The rupee is trading at 68.14 to the US$.

According to a leading financial daily, the Income Tax Department has issued guidelines to plug tax evasion by shell companies or foreign firms set up by groups in India to retain income outside the country.

The guidelines will be used to determine if an entity can be considered an Indian resident and taxed here.

The rules will come into effect from assessment year 2017-18, which essentially means the current financial year, dashing the hopes of industry, which expected their implementation from the next financial year.

Tax consultants pitched for a deferment raising compliance concerns because the rules were issued in the tenth month of the financial year. A few companies have started restructuring operations to ensure that key decisions are made outside the country and the decision-makers are out of the country at the time to ensure compliance.

The Central Board of Direct Taxes released the 10-page final guidelines on Tuesday that will help determine the place of effective management (POEM) of companies, applicable from April 1 of the current financial year. The POEM has been defined as where key management and commercial decisions necessary for the conduct of the business as a whole taken.

The apex direct taxes body made it clear that the objective is to catch those avoiding taxes.

Indian multinationals that have set up arms overseas to raise funds or expand business and foreign companies that outsource high-end critical functions in India to contribute to their global value chain will face tighter scrutiny if they are effectively managed in India.

The norms close the door on tax avoidance opportunities for companies that sought to artificially escape residential status in India by shifting insignificant or isolated events related with control and management outside India.

Firms with an annual turnover of less than Rs 500 million are excluded from the purview of the guidelines and there are safeguards to prevent harassment by tax authorities.

Companies are more inclined to experiment with ways to avoid taxes in India, as our corporate tax rates are amongst the highest in the world.

Indian Corporate Tax Rate Amongst Highest in the World

That said, one must also note companies get a whole raft of exemptions that - as per government claims - brings the aggregate effective tax rate of India Inc. down to just 23%.

This being the case, as we look towards the upcoming Union Budget for 2017-18, the need of the hour is to get rid of the complicated layers of exemptions and to have a simple and uniform tax rate much lower than the current one. This will not only make for better tax compliance by companies, it will also make it easier for the tax department to administer appropriate tax collections as well as reduce tax litigation.

Moving on to news from the <>pharma sector. India's largest biopharmaceuticals firm Biocon Ltd announced today that the Ministry of Health (MoH), Malaysia, has awarded a three year contract, to its subsidiary, Biocon SDN BHD.

The contract is for the supply of recombinant human insulin (rh-Insulin) formulations manufactured at its large scale biopharmaceutical facility in Johor, Malaysia. Biocon's rh-Insulin is Malaysia's first locally manufactured biosimilar biologic product approved by the National Pharmaceutical Regulatory Authority of Malasiya.

Biocon SDN. BHD. has been awarded a MYR 300 million (Rs 4.6 billion) contract to be serviced over a period of three years for supplying rh-Insulin cartridges and re-usable insulin pens under the Malaysian Government's Off-Take Agreement initiative, which seeks to encourage local manufacturing of new pharmaceutical products thus lowering the country's reliance on imports and also enhancing the exports potential.

The contract is extendable for additional two years subject to approval by the Government of Malaysia.

Biocon will distribute insulins and insulin delivery devices through CCM Pharmaceuticals, a leading local pharmaceutical player which has an extensive supply chain network to service primary healthcare clinics and hospitals across Malaysia.

Biocon, is the first Indian company which is getting associated with the Malaysian Government to add value to the bio-technology sector.

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