Note: The following Current affairs has been selected from AIR, PIB, PRS, BBC, The Hindu, IDSA (Institute for Defence Studies and Analyses), Live mint, Indian Express, Quora.com, Hindustan Times, Telegraph, The Times , WTO, New Indian express , The Guardian and is highly recommended for UPSC Prelims and Mains Examination
News Analysis: 11-02-2019
General Studies-III : Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Where ‘angels’ are bedevilled
For the past few months, ‘angel tax’ issues have taken centre stage. Circulars have been issued with the hope that the matter would be resolved to everyone’s satisfaction.
The Department of Promotion of Industry and Internal Trade (DPIIT) is attempting to move a fresh set of solutions to pour water on this raging issue.
From the face of it, a public policy meant to curb shell companies has turned into an attack on genuine investments; and, the solution itself has become a problem.
Does the Department need to take a fresh look at Section 56 (2) in light of the visible outcomes of a public policy gone wrong? We will wait and watch. Till then, let us revisit the issue itself.
The focus was on promoting private sector investment in the country. This being the base, all other processes and rules should run consistent with this foundation. But, it is this premise which is taking a beating and hence the need to address it.
Every investor has a view as to whether a venture is worth investing in, by calculating likely returns. The entrepreneur seeking investment has also determined the extent of control and ownership to be surrendered in return for funds.
Both balance their interests to secure the maximum possible returns. To protect their respective long-term interests, both would be unwilling to compromise on their view. In case of doubt, the investor has recourse to the business plan to convince himself that his assumptions are accurate.
Now, into what should be entirely the domain of the ‘private’ sector, we have brought ‘governmental control’, to the extent that whatever deal may be struck between the investor and the entrepreneur, they are plagued with having to satisfy a clause which can be a threat to the entire venture on account of an unfactored tax burden.
Section 56 (2) (vii)(b) of the Income Tax Act provides for ‘where a closely held company issues its shares at a price more than its fair market value, the amount received in excess of the fair value will be taxed as income from other sources’.
The determination of fair market value becomes the bone of contention. It now comes under the domain of the ‘Assessor’ — meaning the Income tax department.
The department takes a look at the business plan and begins to check whether the turnover and business returns envisaged were achieved.
If they weren’t, the department faults the business plan and concludes that the valuation was much higher than what it should have been. Most businesses in our country are subject to flux on account of laws that are constantly being moved around. Then there is the market situation which is not guaranteed, either.
Even if the investor is willing to wait for returns, the tax department is not. Due to volatile markets, coupled with tax issues, most financial advisers do not recommend formation of private limited companies.
Strangely, it is common to find in recent times businesses — that could have easily benefited from the private limited tag and then becoming public limited companies — still remaining as partnerships or worse, sole proprietorships.
Our ecosystem is not conducive for real growth in the private sector unless you have learnt to ‘handle the system’.
If the government is concerned about ‘shell companies’, it would need to attack the issue head-on and define a shell company. What would qualify a company to be one? Once the identity of a shell company has been determined, the penalty for the same can then be decided.
This would be better than targeting share valuation in a company, which is crucial to attracting investment. Currently, there is no distinction between a company functioning with genuine transactions and one that isn’t.
If money in excess ‘appears’ to be pumped into a private limited company and the source of such funds doubtful, aren’t existing laws (Section 68 or 69 of the Income Tax Act, 1961) sufficient for the authorities to determine and tax accordingly without having to enter into the share valuation sphere?
Currently, consultants often discourage entrepreneurs from forming private limited companies due to factors that influence ease of investment and functioning.
Public policies in this area directly impact the ecosystem affecting the growth of private limited companies. Perhaps, ‘angel’ tax has got to go if private limited firms are to flourish in India.
Source: The Hindu
General Studies-II : Bilateral, regional and global groupings and agreements involving India and/or affecting India's interests Effect of policies and politics of developed and developing countries on India's interests, Indian diaspora.
No zero-sum games
India and the U.S. must work to halt trade hostilities urgently
There are alarm bells in India over a possible decision by the U.S. Trade Representative to withdraw the Generalised System of Preferences status. Under this, India is able to export about 2,000 product lines to the U.S. under zero tariff.
The revocation of the GSP, which was first extended to India in 1976 as part of a global concession by the U.S. to help developing countries build their economies, will be a blow to Indian exporters, and the biggest in a series of measures taken by the Trump administration against India to reduce its trade deficit.
President Donald Trump’s case on what he calls “unequal tariffs” from India rests on the trade relationship in favour of India: Indian exports to the U.S. in 2017-18 stood at $47.9 billion, while imports were $26.7 billion.
The measures are in line with Mr. Trump’s campaign promises. On the matter of Harley-Davidson motorcycles, he spoke directly to Prime Minister Narendra Modi on at least three occasions, demanding that India zero out tariffs to match U.S. rates on Indian motorcycles.
In March 2018, the U.S. began imposing tariffs on several Indian products, and in April, the USTR began a review of India’s GSP status, based on complaints of trade barriers from India it had received from the dairy industry and manufacturers of medical devices. In November the U.S. withdrew GSP status on at least 50 Indian products.
In retaliation, India proposed tariffs of about $235 million on 29 American goods, but has put off implementing these five times in the past year in the hope that a negotiated trade settlement will come through.
The latest deadline expires on March 1. India has also attempted to address the trade deficit with purchase of American oil, energy and aircraft.
There have been dozens of rounds of talks between officials over the past few months, but no breakthrough.
U.S. officials say the decision on data localisation for all companies operating in India, and the more recent tightening norms for FDI in e-commerce have aggravated the situation.
Both sides should work towards calling a halt to trade hostilities and speed up efforts for a comprehensive trade “package”, rather than try to match each concern product by product.
The U.S. must realise that India is heading into elections, and offer more flexibility in the next few months. India must keep in mind that the larger, global picture is about U.S.-China trade issues, and if a trade deal with the U.S. is reached, India could be the biggest beneficiary of business deals lost by China.
The visit of U.S. Commerce Secretary Wilbur Ross to India this week will be watched not as much for substance, as for signals that New Delhi and Washington understand the urgency in breaking the deadlock.
Source: The Hindu
Like,Share and Comment to support the initiative