Government considers changes in tax laws
Petroleum secretary may be transferred
Inflation rate shoots up to 3.31%
Bengal bid to activate power regulator

New Delhi, Jan 30 
The revenue department is considering changes in tax laws to encourage demergers by large companies.

Among the measures under consideration is providing tax breaks on shares and debentures issued in lieu of the demerged company’s shares. A move to amend the norms on asset valuation of a demerged company is also afoot, which will entitle the new company to claim more depreciation benefits.

The government has allowed amalgamations and de-mergers, but several hurdles, particularly those posed by tax laws, have prevented the restructuring of the Indian corporate sector to the extent that was expected. Senior revenue department officials said Section 2 (19AA) of the Income Tax Act allows exemptions only in cases where demergers meant transfer of shares in the newly created company to stockholders.

The new measure will allow tax exemptions in the case of ownership transfers through a composite consideration, which, besides shares, could include debentures or even cash components. However, while the Central Board of Direct Taxes is in favour of extending tax sops to debentures, it is not ready to include cash components because of the feeling that the relaxation could be misused to avoid the payment of legitimate taxes.

Under Section 43(6), asset valuation of the demerged company leads to strange situations where, post demerger, a company finds its assets have been either over-valued or under-valued.

Asset revaluation is of prime importance to companies because the amount of depreciation that can be allowed after the demerger is linked to it. Leading corporate houses and industry chambers have been lobbying the finance ministry to rectify this clause which, they say, costs them in terms of lost depreciation benefits when they spin off divisions.

Officials say they will now bring in a suitable amendment to ensure that the reduction in the written-down asset value — calculated by deducting the book value of the assets spun off — should not exceed the written down value of assets transferred.    

New Delhi, Jan 30: 
The petroleum and natural gas secretary, S. Narayanan, may be shunted out of the ministry in a secretarial reshuffle, expected to be announced shortly.

A Tamil Nadu cadre IAS officer, Narayanan was appointed to his current post only three months ago. He succeeded T. S. Vijayraghavan who was shifted to the ministry of heavy industry.

Narayanan’s impending exit is being attributed by sources to powerful lobbies eyeing the deregulated petroleum pie.

Of late, the cash-rich petroleum ministry has turned out to be the next best target of lobbyists after defence.

Narayanan, acknowledged to be articulate and a quick decision maker, has turned out to be an inconvenient stumbling block for industry lobbies, and his imminent exit from the ministry is the subject of animated discussion in petroleum industry circles.

Official sources, though, declined to identify the lobbies gunning for Narayanan.

However, both foreign and domestic firms have been active on the lobby front, giving rise to speculations about their role in the move.

Meanwhile, the petroleum ministry has set up a group under additional secretary Naresh Narad to take a fresh look at the deregulation scenario. The entire petroleum sector is scheduled for deregulation from April 1 this year.

However, the government is under pressure from various lobbies to advance the deregulation and to dilute the stipulation that only those with a minimum investment of Rs 2000 crore in refineries can be allowed to enter the marketing of petroleum products.

On the other hand, even as the deregulation deadline advances, there is no proper regulatory authority in place.    

New Delhi, Jan 30 
The annual inflation rate moved steadily upwards to a 32-week high of 3.31 per cent for the week ended January 15, despite the wholesale price index remaining unchanged.

The inflation rate had touched the previous high of 3.53 per cent for the week ended June 5, 1999.

The 0.20 percentage points rice in inflation rate to 3.31 per cent (provisional) as against 3.11 per cent (provisional) in the previous week was mainly on account of rise in select indices under the manufactured products category.

Inflation rate was, however, way higher at 4.53 per cent during the corresponding week last year.

The wholesale price index for ‘all commodities’ (1981-82= 100) for the week ended January 15, remained unchanged at the previous level of 365 (provisional).

Though inflation rate had remained below the three per cent mark for most part of the current financial year, it is forecast to rise further to four per cent levels in the coming months as the higher base resulting from abnormal rise in agricultural commodity prices last year is on the wane.    

Calcutta, Jan 30 
The West Bengal government has asked the state power regulatory commission to finalise the rules that will enable the commission to fix electricity tariffs .

Giving up control over tariff fixation will be the state’s first step towards power sector reforms.

Power minister Mrinal Banerjee said: “A new chairman for the power regulator will shortly be appointed in place of N.N. Bhattacharya who retired last month. A lot of work on the regulations which need to be notified by the commission has been completed.

“Once a chairman is appointed, the commission will need to specify the time frame within which it will be able to finalise the new rules,’’ Banerjee said.

Depending on the time frame taken by the commission and the subsequent gazette notification of the regulations, the decision on the tariff hike proposals of CESC and WBSEB will be taken, the minister added.

Banerjee, however, did not clarify if the powers to revise the tariffs for the current year will be retained by the state power department since the commission was not yet ready with the basic regulations and may take a long time to do so.

“How can I comment on that. It all depends on the time frame within which the regulatory commission can finalise its rules. Depending on that we will decide our next course of action,’’ the power minister said.

Banerjee however refused to fix a time frame for this exercise despite the fact that a tariff revision for the state’s utilities is already overdue. The last revision took place in October 1998 after a two-year gap.

Banerjee also did not divulge the name of the new chairman who will succeed Bhattacharya. Sources said the state government had zeroed in on another retired judge of the Calcutta high court, S.K.Sinha, as the new chairman.

The government is under great pressure to implement the new tariff proposals. CESC has attributed its huge Rs 32 crore loss in the third quarter of the current fiscal to the delay in tariff revision. The tariff hike of October 1998 was accorded after a two year time gap because the power ministry headed by Sankar Sen was grappling with the controversy over CESC’s fuel surcharge arrears.

Set up in March last year, the West Bengal Electricity Regulatory Commission (WBERC ) had a chairman but no members, no office or even stationary for most of the seven months after that.

The previous chairman, Bhattacharya, retired without informing the state government. He also did not meet Banerjee since he could not get an appointment.

After Bhattacharya left, member (technical) R.R.Ganguli and member (finance and accounts) A.K.Jain did the initial groundwork over the regulations and other issues.

Since the entire process is going at a slow pace, it remains to be seen when the tariff hike for the state’s power utilities actually takes place.    


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