LIC accounting practices, tax reliefs come under s
Infotech gains most as Sinha offers sweeteners
40% bound tariff for consumer goods proposed
Volatile sensex prunes losses in home run
HDFC net up 20% at Rs 402 cr
Telco revs up with Indica 2000

Mumbai, May 3 
Tax exemptions enjoyed by the Life Insurance Corporation and its accounting practices have come under review at a time when the insurance sector is being opened up to private Indian and foreign investment.

An 11-member committee has been appointed by the Central Board of Direct Taxes to scrutinise the accounts of the monopoly life insurance company. The question of the rate at which LIC is taxed — it pays 12.5 per cent while companies across all industries have to bear 38.5 per cent — will be settled once the committee completes its study. The report is expected in four months.

LIC has been enjoying the tax exemption for 22 years. Similar tax privileges extended to ICICI Ltd, Exim Bank, IDBI Ltd, and the Deposit and Credit Guarantee Corporation have already been withdrawn.

The committee, headed by former board chairman V.U. Eradi, met on May 1. It will examine the balance sheet for the last three years as well as LIC’s revenue surplus accounts to trace the corporation’s various sources of income.

It will study practices followed abroad for quantifying income from the life insurance business for levying tax.

The bone of contention between the tax authorities and the corporation is the Rs 5,300-crore income declared by LIC. The tax department disputed this by stating that income could be far higher.

Under current practice, LIC’s accounts are certified by an actuary and have to be accepted at face value. The tax authorities say that if the commercial accounting system were to be applied, the taxable income would be around Rs 21,000 crore.

LIC’s argument so far has been that policy premium cannot be construed as income as a bulk of it is returned to the policy-holder at the time of maturity of the policy. While a section of the committee concurs with this view, an analysis of the 1999-2000 accounts reveals that income from dividend and interest alone accounts for Rs 13,000 crore.

LIC is a leading investor in the stock market over and above its investments in bonds and debentures.

“How they (LIC) arrived at Rs 5,300 crore is debatable. In fact, 10 different actuaries would give 10 different figures,” commented a source wryly.

According to the tax authorities, if commercial accounting principles were followed, LIC would have to show four times what it currently files as returns. The committee scrutinising the accounts has representatives from the CBDT, insurance regulatory authority, LIC and income-tax department and chartered accountants.

At the May 1 meeting, all members were present except Deepak Parekh, head of HDFC which plans to enter insurance.    

New Delhi, May 3 
Yashwant Sinha today ladled tax incentives for the middle class, raised tariff walls and handed fresh incentives for capital markets as he tried to sell a sweetened budget to Parliament.

Juggling duties and mixing sops in his budget tightrope, Sinha announced today that shares under stock option schemes will not be treated as perks and, hence, will not attract income tax. However, capital gains tax will have to be paid when they are sold.

The tax surcharge on incomes above Rs 1.5 lakh will continue to be 15 per cent, but it will be only 10 per cent if the tax is deducted at source, to obviate operational complications.

Steering the Finance Bill for 2000-01, Sinha said annual tax deductions against interest paid on home loans (self-occupied dwelings) can now be claimed on amounts up to Rs 1 lakh compared with Rs 75,000 earlier.

For the capital market, the investment limit for tax rebates on infrastructure bonds has been doubled to Rs 20,000, and tax shelters built for venture funds.

Sinha said venture funds will enjoy a complete pass-through status, meaning their incomes will be taxed only in the hands of investors. He also promised to reduce from five years to three, the lock-in period for investment of capital gains in bonds floated by National Highway Authority of India (NHAI) and Nabard.

The exemption limit for interest tax deducted at source in the case of non-bank deposits has been raised to Rs 5,000.

Domestic industry was given stronger tariff shields. Basic customs duty on tea and coffee was raised from 15 per cent to 35 per cent, on coking coal from 15 per cent to 25 per cent and on poultry meat and their preparations from 35 to 100 per cent. An additional 16 per cent customs duty has been imposed on marble slabs and tiles that cost more than Rs 30 per square metre.

Also, silicon, e-mal, intravenous fluids, tapioca starch and heeng have been exempted from Cenvat. Biscuits priced below Rs 5 and weighing less than 100 grams will get a 50 per cent rebate in Cenvat.

The limit for duty-free clearance of paper manufactured from non-conventional raw materials is being raised from 2500 tonnes to 3500 tonnes annually.

Artemisinin, an anti-malarial drug, has been exempted from basic customs duty. Duty on dbm, fused magnesia and certain kinds of sea water magnesia is being reduced from 35 per cent to 25 per cent. The changes will be effective from tomorrow.

The finance minister also announced setting up of a Rs 150-crore R&D fund for knowledge-based industries, especially in pharmaceuticals and bio-technology. The weighted deduction of expenses by these companies will be raised from 125 per cent to 150 per cent. “These research and development companies will get a 10-year tax holiday,” he said.

However, Sinha made it clear that tax concessions to export oriented firms, units in free-trade zones and software technology parks, will be phased out over ten years. This means companies setting up shop till the last fiscal would get concessions for ten years. It will come down progressively for units set up later.

The finance minister proposed a raft of concessions for information technology-enabled services. He said domestic sales of these firms will continue to get concessions if they account for 25 per cent of the total turnover. Firms in special economic zones will be given similar benefits.

Non-profitable charitable companies have been exempted from paying the minimum alternate tax (MAT). The finance minister sought to help farmers by stopping the system of tax deductions at source in the case of compulsory acquisition of agricultural land.    

New Delhi, May 3 
The special subject group, set up under the Prime Minister’s council on trade and industry to prepare the strategy for a reconvened World Trade Organisation (WTO) ministerial conference, has suggested that India bind tariffs on consumer goods at a minimum of 40 per cent.

The report has also called for a substantial reduction of tariffs by industrialised countries on labour-intensive and low technology manufacturers, where India has a comparative advantage, greater market access for agricultural exports and a shorter timeframe for phasing out the multi-fibre agreement (MFA).

The report, prepared by Rahul Bajaj and N Srinivasan, was presented to the government last week.

It says that a substantial reduction of tariffs by industrialised countries should include the reduction or elimination of tariff peaks, conversion of all specific duty rates into ad-valorem rates and removing tariff escalation. However, in the absence of any agreement on the conversion of specific duties into ad-valorem rates, India should seek the option of levying specific rates of duty for industries where production is highly cyclical and subject to sharp fluctuations.

Also in the wake of quantitative restrictions being phased out completely by April 2001, the group has demanded that tariffs on consumer goods be bound at a minimum of 40 per cent. Tariff lines for many consumer goods were earlier kept out of the binding commitment and instead protected through quantitative restrictions.

Further, applied tariffs for most non-consumer goods being lower than the bound rates, the group has suggested converging bound rates with the applied rates.

The report has also pointed out that the mushrooming of a large number of regional trading arrangements (RTAs) which bypass the WTO, has led to increased protectionism.

It has opposed the possible inclusion of a multilateral agreement on investment on the future agenda of the WTO.    

Mumbai, May 3 
The Bombay Stock Exchange (BSE) sensex today closed 36.93 points lower at 4335.29 in a roller-coaster session triggered by finance minister Yashwant Sinha’s tax goodies to knowledge-based industries, especially drug companies.

The 30-scrip index opened considerably weaker at 4372.22, largely because of overnight losses on the Nasdaq and Wall Street. Soon after, operators swarmed counters with sell orders and clobbered several shares to their lower-end 12 per cent circuit filters.

The sensex plumbed its intra-day low of 4109.66, off a massive 262 points from its opening quote. The BSE-100 index also suffered a loss of 52 points at 2180.38 compared with its previous close of 2232.38.

At this point, a few institutions led by UTI started a round of bargain-hunting, picking up scrips while they hovered at lower ends. Though this led to some recovery in the market, but was not enough of a trigger.

Then, towards the afternoon, the finance minister laid out a thick spread of tax sops and incentives that ignited a sudden burst of buying by local institutions and FIIs.

The most significant announcement was that R&D companies in the pharmaceutical and biotech sectors will enjoy a 10-year tax holiday and their weighted deduction for research expenses would be raised from 125 per cent to 150 per cent. The income-tax exemption granted to shares issued as part of ESOP also fuelled a surge in buying by UTI, FIIs and even speculators in some technology names.

Soon after, many pharmaceutical shares, particularly those of companies with a sharp R&D focus, were seen hitting their upper-end circuit filters. They were joined by infotech stocks.

While the rebound pumped in a wave of euphoria and hope, operators remained divided on whether today’s turnaround would lead to a broad-based rally.

“Except for R&D sops for the pharmaceutical industry, there is nothing significant that Sinha has offered to put the market in consolidation mode,” a broker said. The announcement that the process of phasing out tax concessions on software exports will continue, could also hold back several infotech shares from joining a rally, an analyst said.

Sun Pharmaceuticals, Dr Reddy’s Labs, Cipla, Ranbaxy, Pfizer and Glaxo were the star gainers among pharmaceutical shares. NIIT, Infosys, Zee Telefilms, Digital Equipments, HFCL and Lever also sizzled. In the specified group, Sun Pharma and Digital Equipment were locked in the upper end of their circuit filter at the close.    

Mumbai, May 3 
The Housing Development Finance Corporation (HDFC) has posted a 20 per cent rise in net profit for the year ended March 31, 2000. Net profit rose to Rs 401.81 crore as compared with Rs 333.90 crore in the previous year.

During the year, the total income of the corporation increased to Rs 2,015.56 crore from Rs 1,752.73 crore in the previous year. An HDFC press release said that loan approvals in the year stood at Rs 5305 crore as compared with Rs 4072 crore in the previous year, thus representing a growth of 30 per cent. Loan disbursements were Rs 4493 crore against Rs 3424 crore, representing a growth of 31 per cent.

It added that the individual loan business continued to be robust, recording the highest ever increase in loan applications, despite intense competition from banks and financial institutions. The cumulative loan approvals and disbursements as of March 31, 2000, were Rs 24,215 crore and Rs 20,150 crore respectively. The non performing loans according to HDFC, for more than six months as of March 31, amounted to Rs 98.71 crore, which is equivalent to 0.90 per cent of the portfolio.

Godrej Soaps Ltd has reversed its losses to post a net profit of Rs 60.99 crore during the year ending March 31, 2000, as against a loss of Rs 29.93 crore in the previous year.

Income from operations declined from Rs 907.31 crore to Rs 786.20 crore, according to the annual financial results released here today.

Sales of consumer products (Godrej brands) were up by 28 per cent at Rs 324.44 crore over Rs 339.80 crore in the previous year, it said. In the detergent segment, sales recorded a jump from Rs 3.09 crore to Rs 22.37 crore after the acquisition of the Ezee and Trilo brands.    

Pune, May 3 
In a bid to ward off its Korean and Japanese rivals who are breathing down its neck in the hatchback segment, Tata Engineering today launched Indica 2000, its Euro II compliant, 75 bhp multi-point fuel injection (MPFI) petrol version of the Indica.

“In launching the Indica 2000, our focus has been to offer a new dimension of performance in the hatch-back category, backed by the assurance of the core Indica brand,” said Ravi Dube, general manager (commercial), passenger car business unit.

It has been priced competitively at Rs 3.18 lakh (ex-showroom, New Delhi) for the LEI (A/C version), while the LXI model (the sportier version) will sport a price tag of Rs 3.96 (ex-showroom New Delhi).

“The introduction of the MPFI is an answer to the demands of the market. With the launch of the two models, we will be able to carve a significant market share in the petrol hatchback segment.”

Touting “performance and driveability” as the two key attributes of the new version of Indica, Dube felt that with a 75 bhp engine, it becomes one of the most powerful cars in the segment.

Significantly, its diesel powered cars which have three variants, contribute to a large chunk of the company’s sales. This, Dube said, was a conscious strategy, in view of the fact that the company’s core competence lay in the manufacture of diesel engines.

With the introduction of the new variant, the company will now look towards achieving a target of 90,000 cars in the current fiscal, with sales of the MPFI version are expected to contribute at least 15-20 per cent to this figure.

The engine comes packed with a 16-bit microprocessor-controlled engine management system, the Indica 2000 is the most powerful car in its class and is being launched in two trim levels.

The Tata Indica, India’s first indigenously-developed passenger car launched in December 1998, attracted a record fully-paid bookings of over 115,000.

The car has bagged 8.8 per cent of the total passenger car market and a 21 per cent share in its category during its first full operating year, achieving a sale of 54,480 cars in 1999-2000. It clocked a sale of 50,000 cars in just 12 months since the commencement of deliveries.

The feat is all the more impressive when seen in the context that it was achieved through a network of just 57 dealers as against Maruti Udyog’s 190 dealerships and Daewoo’s and Hyundai’s 110 and 75 dealerships respectively.    


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