Car makers weigh budget burden
Tax blow to holding firms
Assocham flays new Cos Bill
Boost for trading in jute goods
HM offers one-year wage deal to workers
Business briefs

New Delhi, March 5 
Less than a week after Yashwant Sinha walked away from Parliament after telling the country how he plans to keep the wheels of the economy moving, car companies are scanning his budget to understand the implications of tax proposals. More important, as many realise they have to pay the government more, they find themselves in a dilemma � whether or not to ask their customers to shell out that extra amount.

It�s not as simple as raising prices, given that the memories of recession still haunt these companies. The last thing they would want to do at this stage is to jack up prices and slip back into a slump. However, that does not mean cars will not cost more. From all indications, they will. But the increases will not be uniform across companies and models.

How much firms finally pass on to customers � or take on themselves � depends on a host of factors like the type of models and the degree of local content used in manufacturing. Models like Mitsubishi Lancer, Honda and Baleno � all in the luxury segment �could become dearer by a few thousand rupees. The prices of multi-utility vehicles (MUVs) such as Gypsy and Omni have already been raised by Rs 6,000 and Rs 3,000 respectively last week.

A quick look at the tax rates offers an insight into the dilemma being faced by companies. Earlier, passenger cars attracted a 24 per cent value-added excise duty and a 16 per cent special duty. After the budget, this has been revised to a 16 per cent central value-added tax (Cenvat) and a 24 per cent special duty.

Unlike before when companies could claim modvat credit on a 24 per cent levy, they can now do so only on 16 per cent. Nevertheless, car makers who rely mostly on local content will have to pay an excise duty of 16 per cent � all of which will be modvatable.

Companies like Mitsubishi are likely to be affected most by the changes in excise duty. �The impact would be in the range of Rs 2,000-3,000 on Lancer. The decision to pass on the burden to customers or to absorb will be taken soon,� a company source said.

Similarly, Honda Siel, which imports more than 30 per cent of the components for its City model, will have to either absorb the increase in costs or pass it on. However, a company official said there would be no major impact on the price of its cars.

According to industry experts, the budget will hit companies which depend heavily on the imports of completely knocked down (CKD) units harder. For those with a high level of indigenisation, the increase in prices will not be more than Rs. 7,000.

For instance, B.V. R.Subbu, director, marketing and sales, Hyundai Motors India, reckons the change in duty structure will only have a negligible impact. �The impact of peak import duty reduction on companies will depend on the segment in which the car has been positioned and the level of imports,� Maruti Udyog (MUL) MD Jagdish Khattar says.

�With a single-point value added tax, Modvat will not be an issue any longer. The impact of changes in duty structure will differ across companies and models,� Daewoo Motors India chairman S G Awasthy says.

At a time when signals about impending price hikes are worrying potential buyers, Ford India has calmed fears by categorically saying it will not pass on the burden customers. �The revisions have not affected us in a major way because of the high local content in our cars. Whatever little impact there is, will be absorbed by the company,� a Ford spokesperson said.

The picture on price hikes is clearer in the case of eight-seater vehicles � or the fast-growing MUV segment � where the excise duty has increased by 2 per cent to 32 per cent. �The rise is unavoidable and will be passed on,� Maruti Udyog sources said.

Other MUV manufacturers like Mahindra and Mahindra, Telco and Bajaj Tempo are also likely to announce higher prices soon. Bajaj Tempo chairman Abhay Firodia has already voiced the industry�s displeasure over the hikes in excise duty. Sources in Telco, another key player in the MUV segment, say a price rise is inevitable but the company is still working out the impact of changes in excise duty on prices.    

Calcutta, March 5 
The fate of the layered holding company structure that has been such a favourite with telecom and other infrastructure companies has become uncertain. One reason for this is that the the hike in the dividend tax in Union budget 2000 has severely undermined the returns on investment by foreign companies.

The telecom sector and the infrastructure sector will be affected the most by Sinha�s proposals.

�The repatriation of the funds to the foreign investor will be significantly reduced,� a telecom industry source said.

An official of the Infrastructure Development Finance Corporation said: � We have informed the finance ministry of the complications arising out of the dividend tax going up from 10 per cent to 20 per cent and officials have assured us that a way out will be found.�.

Rathin Datta, senior partner (tax), of PriceWaterhouseCoopers (PWC) says the the change in the tax structure will now upset the applecart and could jeopardise investment flows into the country.

As per the existing tax structure, the joint venture pays a corporate tax of 38.5 per cent. Once the Budget 2000-2001 proposals are adopted, the returns which flow back to the holding company will now bear a 22 per cent dividend tax as well.

As a result, the returns to the holding company will be reduced. In addition when the holding company repatriates dividend to the 49 per cent shareholder, ie the MNC, it will have to bear another 22 per cent dividend tax.

Datta says these extra payouts will make it extremely unremunerative for the MNC to follow the holding company route.    

New Delhi, March 5 
Assocham has criticised the Companies Amendment Bill 1999, that seeks to give control over listed public companies to Sebi, saying it is ill conceived and will create an overlap in the jurisdiction of the Company Law Board (CLB) and the capital market regulator.

Assocham said that Section 55A of the Bill states public companies which �purport to be listed� shall also be administered by Sebi without clearly defining the phrase �purport to be listed�.

Assocham has also criticised the provision in the BIll that seeks to bring interim dividend within the definition of dividend.

This, the Assocham says, implies that norms on dividend will be made applicable on interim dividend as well.

The norms include payment of dividend within 42 days � in the bill it is proposed to be reduced to 30 days � and transfer of unpaid dividend to special bank account.

By including interim dividend within the definition of dividend, the Bill will generate administrative problems for the company.

The company would then have to call a shareholders meeting everytime it announces an interim dividend.

This is a time consuming process and a drain on company resources.

Assocham has said while it is possible to despatch dividend warrants within 30 days of the date of declaration of dividend by the shareholders, it will not be possible to despatch the dividend warrant in case of interim dividend within 30 days of declaration by the board of directors.

This is because stock exchanges require at least 42 days notice for fixing record date/book closure which is possible only when the actual rate of dividend declared proposed by the company is made known to public.    

Calcutta, March 5 
Public sector trading outfits have started dealing with jute products. The State Trading Corporation of India, which was the exclusive canalising agent for commodities, has recently entered the jute trade. Another commerce ministry undertaking, PEC ( formerly Project and Equipment Corporation), has also been directed to enter the jute sector.

Both STC and PEC are looking for new merchandise to trade in domestic and international markets following the abolition of its canalising business. The government had floated STC to deal in canalised commodities and PEC for project engineering and engineering goods.

The moves by the public sector trading outfits have come as a boon for the city-based National Jute Manufactures Corporation. NJMC has decided to earmark production from its Kharda unit for STC which has already traded in Rs 2 crore worth of jute goods of the corporation.

NJMC is now negotiating with PEC, and plans are afoot to earmark production from its Kinnison Mill for PEC, the corporation�s chairman and managing director B.M. Mahapatra said. NJMC had floated a re-tender seeking conversion agents. Its earlier tender process was disrupted by a section of the workers who disallowed some parties from submitting their bids. Trade unions are also opposed to the idea. The re-tender floated earlier this week, on court instructions, will be reopened next Monday.    

Calcutta, March 5 
The Hindustan Motors (HM) management has offered a one-year wage agreement proposal to its employees, against its normal practice of a three-year agreement.

A wage agreement with the 10,500 odd workers of the company is due since June 1998, when the previous agreement expired.

The management had earlier told employees that a new wage agreement is possible if monthly sales cross 2,100 units.

Sources said the production has already crossed 2,100 mark while sales have also picked up

�The management has now said that they will not go in for a three-year wage settlement. They will restrict the wage settlement to one year,�� Ajit Chakroborty of the Intuc-affiliated Hindustan Motors and Hyderabad Industries Employees� Union said.

The management said they can give an ad-hoc increase of Rs 400-450 to the employees. An ad-hoc increase is not related to bonus, gratuity and provident fund.

It is a lumpsum amount given with the salary and hardly has any effect on the statutory benefits of the workers.

�When we did not agree to the management�s proposal of an ad-hoc increase, they said that in this situation they can only make an overall increase of Rs 165,� Chakroborty added.

The management had also asked the unions to submit a revised charter of demands. The charter of settlement of the HM workers had expired in June 1998.

The charter of demands that was submitted by both the Citu and the Intuc unions would have cost the company Rs 32 crore.    

Daewoo puts off India plan

New Delhi, March 5: The beleaguered Daewoo Motors Company of South Korea has decided to hold back, for the present, the $ 100 million equity infusion into its Indian subsidiary � Daewoo Motors India Limited (DMIL). ), besides reviewing the viability of the company�s commercial vehicle and bus manufacturing activities in India. The fresh equity infusion is not an immediate priority with the company, �besides no immediate need for the investment is felt now,� company sources said.

Inflation rate

New Delhi: Inflation rate continued to tumble for the fourth successive week to touch a 20-week low of 2.08 per cent for the week ended February 19, despite the overall wholesale price index (WPI) remaining unchanged.

Seagram import

New Delhi: Seagram has been denied licence to import alcoholic concentrate from Scotland for non-fulfilment of export obligations.

Leyland tieup

New Delhi: Ashok Leyland has tied up with Iveco of Italy, ZF of Germany and US axle maker Meritor to access Euro-I, II and III emission norms compliant engines .    


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