gst reforms

GST Could See Major Overhaul; Reducing Tax Slabs, Pruning Exempt List on Table

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GST Reforms and Tax Exemption

GST is all set for a major overhaul. The government might be contemplating paying greater attention to major GST reforms of the Goods and Services Tax structure.

A great haul is waiting for the GST as the administration will effectively complete its five years in July next year. This will be the year when the state’s compensation will end. Thus, the government is contemplating restructuring tax slabs and reducing exemptions.

According to the reports, the consumer can witness a new system that may be characterized by three major tax rates that can probably cover most of the items for the current four, i.e., 5%, 12%, 18%, and 28%. This will be emphatically done to simplify the structure and generate profits.

The states’ loss of funds

It is to be noted that a feasible plan is being drawn out for the states that would be facing the fall of revenue that they have gathered all these years for their functioning.

Though, it is to be noted that the center will effectively compensate the state for loss of income due to the strategic implementation of the five-year GST. Thus, one can state that the states’ will be significantly worried about the end of this compensation as the states are concerned about a significant reduction in their revenue.

gst collection

In a recent turn of events, the Federal Finance Minister Nirmala Sitharaman “intentionally or unknowingly” had reduced the effective GST-based tax rate from 15.5% to 11.6% of the initial earnings neutrality due to multiple tax cuts since the launch of the GST in July 2017.


The plan to strategically renew the revenues of the states

The mere reason for the revision of the tax slabs that have been set up for review is that both the state and center policymakers want to endorse the slab review to address revenue issues that might materialize after the completion of 5 years.

tax exemptionIn order to compensate for the lost revenue, the suggestions and propositions for the inclusion of the list of items for both goods and services that are currently tax-exempt are being explored. Thus, effectively removing the tax exemption list can heavily increase the GST base. This will help not only to increase revenue but also keep the overall tax rate at a reasonable level.

In order to incorporate a less intricate tax system and to increase the revenue for the states, options for effectively merging the 5% and 12% taxes to create one rate are being explored by the authorities.

In fact, exploration of strategic plans to create slab regimes of 18% and 28% of the merged rates are also on the table for discussion.

GST reforms throughout the years, is the loss of revenue a surprise?

GST, according to the experts has been a landmark tax reform. Though, it has come under fire for its prior overestimation of revenue collection which really didn’t materialize.

But during the pandemic, the country saw a substantial increase in the revenues of the state and center, which had worked well for the government’s functioning during the pandemic. but was this increase in GST collection really a perennial source?

The answer is an emphatic no. though the estimated revenue projections have gone down in recent years, during 2021, pent-up demand had effectively led to the whopping collection of GST. On top of that, commodity prices too had resulted in a record increase in GST collections in recent months.

Therefore, the increase in the GST collection wasn’t really a permanent source of income for the state and thus, a certain loss of the same shouldn’t get the government by surprise.

But indefinitely, the loss of revenue will be an issue that needs to be considered. Another implication of such high GST collection is also that covid-related concerns have subsided, and thus consumption demand is increasing.

gst structureMaking the tax system less intricate

Apart from the four major tax slabs aforementioned, 0.25% and 3% effectively apply to jewelry and precious metals. It is no news that the GST web is a complicated one with many commonly used items exempt from GST.

This creates a complex system that is emphatically prone to classification disputes and leaks. According to the report, the GST does not usually tax nearly 150 goods and over 80 services, which leads to humungous complexity in deciphering which articles are exempt and which are not.

Thus, the strategic rationalization of the GST structure is important and the need of the hour and the government can start with the major haul it is preparing.

As aforementioned, the GST collection in recent months had shown promising results. Thus, it might be a good time to simplify the pricing structure. On another note, rationalization is also needed as multiple exemptions, and rates need to converge to two or three pricing structures.

In totality, it is highly recommended that the focus should not be merely or solely on raising the effective tax rate, but on further expanding the tax base. This should be achieved by keeping taxation moderate.

Furthermore, it is to be noted that from a tax policy perspective, it’s emphatically important to remove barriers which are in the form of restrictions on the application of GST based on packaging size, price, capacity, etc., and input credit billing.

Therefore, GST may actually see a large overhaul which will include a reduction of tax slabs, and pruning of the tax exemption list.

Tags: gst collection, gst structure, tax exemption, gst exemption, gst tax system, gst rate structure, exemption under gst, gst tax exemption, gst tax structure

global minimum tax

Global Minimum Tax: A Blessing or a Curse?

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Explaining The Global Minimum Tax System

The global Tax system has been a hot topic for the countries for years, so much so, that the group of Seven nations, namely, France, Italy, Canada, Germany, Japan, the United Kingdom, and the United States, effectively agreed on 2021 to promote a new global tax regime.

It is to be noted that the newer global tax regime would help solve the twin goals of the tax scheme. Firstly, to effectively make large transnational corporations and companies pay more tax while operating in tax havens or where they conduct their economic activities, and secondly to severely mitigate the attractiveness of tax havens for the multinational companies in pursuit to escape paying taxes.

The need for such a tax regime to mitigate the attractiveness of the tax havens is due to the fact that transnationals effectively often try to establish their tax homes in countries with low corporate income tax rates, in order to escape the high tax regimes in their own countries.

Thus, the proposed tax regime will help in transferring transnational companies’ profits from their home countries to the countries in which they make sales.

Additionally, it is to be noted that the newer tax regime will emphatically help set a global minimum tax rate of 15% for companies and multinationals all around the world.

global tax regimeIt is worth noting here that the newer global tax regime is being pushed forward by wealthy economies that have systematically agreed to the global minimum tax proposal. These include the G7 and G20 members that are particularly wary of seeing profits made within their borders going untaxed or escaping the grasp of western tax systems.

To talk about the monetary loss that is accruing to western countries due to operations of multinationals through safe havens stands at a whopping $500 billion, which is effectively lost in revenue each year. This corroborates the fact that the western economies are quite inclined toward restoring their lost profits over the decades.

The full story?

This gives rise to a pertinent question is the problem of a non-existential global tax system only limited to monetary losses for the counties? Perhaps, there is more to the story than what meets the eye.

It is to be noted that of the annual revenue that is lost to tax havens, around $200 billion is lost by less-developed countries as well.

global minimum corporate taxDeveloping countries: a boon or curse?

Given the fact that even underdeveloped countries have much to lose, will these countries join the race to mitigate such discrepancies? Not quite amicably.

This is due to the fact that various tax havens like the Cayman Islands would continue to offer enough incentives and exemptions to effectively and emphatically retain investments in its economy, which are needed to drive its economic growth.

Thus, such practices will be prevalent even if the government will adhere to an international minimum rate. Thus, this will significantly lead to the reduced effect of a minimum tax regime being crafted by the wealthier countries.

But given the incentive of the less developed countries do not to adhere to the global minimum tax, the more important question that arises is whether joining the race makes any sense for less-developed countries?

Though, according to the reports, there is effectively no guarantee that a global minimum rate of 15% would anyway shift investments from current tax havens to less-developed countries. Thus, the developed county’s proposal may partially bear fruits.

Though, the developing economies cannot be chastised or criticized for not adhering to the regime as they face enormous pressures to attract foreign capital for growth. Thus, they effectively cannot be faulted for this desire.

Though, it is to be noted that though finance might seem like the most viable and tantalizing option to grow, more effectively basic infrastructure, sound fiscal policies, and conditions, stable government, etc. play a larger role.

global corporate taxThus, if the larger implication of the global minimum tax policy is to be scrutinized, it can be stated that it will at least contribute to the process of elimination of the temptation for other less-developed countries to systematically join the race to the bottom. In fact, according to the reports, we might even encounter beneficial changes in policies in the current tax havens.

Thus, given the aforementioned arguments, one can effectively argue that the minimum tax regime will bore well for the developed countries in order to attain its lost revenues but for the developing economies, the answer remains more complicated.

With the tantalizing benefits of investments in the economy that are presented to the developing countries, it is quite arduous to make a stance about the feasibility of the global minimum tax regime. With much more to lose, in terms of infrastructure, revenues, labor utility, etc. one can argue that the case for the developing countries is quite delicate and complex.

Thus, in totality, it can be maintained that the minimum tax regime has immense advantages for some well not much for others. Thus, it is a boon for the developed countries but for undeveloped countries, it is too soon to tell.

Tags: global tax regime, global tax, global minimum corporate tax, international tax, global corporate tax, g7 global tax, world tax, minimum global tax, global minimum tax deal, global tax system

crypto users

Fear, Uncertainty, Doubt: The FUD Reality of Crypto Users

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The FUD Reality of Crypto Users

The Indian government has got the Indian crypto users or crypto traders anxious again due to its antagonistic stance against the contentious digital currency. The recent crypto regulation law has sent many traders desperately trying to sell a part, if not all, of their cryptocurrency portfolio, but, quite detestably, the trades wouldn’t go through. In a turn of recent events, the panic sell-off amongst crypto investors, which had recently warmed up to the technology, was triggered after it was announced that a crypto bill would be introduced in Parliament’s winter session.

What came across as concerning was the fact that the bill mentioned that trading of all private cryptocurrencies would be prohibited.

Given the speculative nature of the market, confirmation of such a humungous step was quite enough to send the market in frenzy. This led to plunging values in the crypto market with the prices fluctuating frequently. This has in fact been proven quite detrimental for the investors who were trying to sell or buy the stock.

With higher transaction values, the complaints about MobiKwik and the Wazir X app crashing were registered as well.

indian crypto tradersA hasty, uninformed decision?

Given the present circumstances prevailing in the crypto market, where does this make the crypto users stand? It is to be noted that the thousands of panic-stricken small investors have been left staring at their screens, being made to face the ordeal by the authorities.

This has led to venting out of frustration by the users on Twitter- which can appropriately be described as the fear, and uncertainty that can be seen among the investors in the market.

But given the uncertainty and mayhem that is at play in the crypto market, can the government be accused of an uninformed, hasty decision? Certainly not. One can perhaps argue, that the market was quite well versed with the government’s antagonistic and aversive attitude towards the contentious distal asset.

With various warnings of a ban, or curtailment, the latest bill shouldn’t come as a surprise for the users who might have been keeping tabs on the news in the market.

But has sagacious investing been a prominent choice for the investors? given the market conditions, one can emphatically argue that the humungous sell-off that happened earlier in the week across one of the biggest Indian crypto exchanges shows the exuberance and irrationality had always pervaded the better judgment of the investors in the market.

What is adding to the mayhem, is the fact that the exchanges keep on crashing, which happens to be becoming a pattern now. According to the reports, when the transactions are high, the exchanges usually crash. This effectively doesn’t let the trades go through.

cryptocurrency portfolioBut has there been a precedent that has been set for such a situation? The answer is affirmative. Similar problems were encountered earlier too when China’s central bank had effectively announced that all transactions involving cryptocurrencies were illegal.

This gives rise to a pertinent question, what exactly should be a preferred course of action under these circumstances? It is to be noted that a few smart investors have already started derisking themselves. This involves trading on various platforms to avoid a glitch.

According to the reports, the people and the traders have been demanding penalization of such exchanges which are working ineffectively. But why is such a glitch leading to such anguish amongst the investors if it merely represents delays in transactions? This is due to the fact that delays are leading the traders to fail in closing the trades.

This brings to the table the proposition that the trades and the platforms should be thoroughly be regulated like equities so that small investors don’t lose much money in the panic and anguish. This proposition has been brought to the table due to the mere fact that Sebi usually launches a probe if people lose money in equities due to a website’s glitches.

To top it all the need of the hour is the government’s intervention and assurance that needs to be provided to the panicking investors. with assurances that time will be given for withdrawal and closing of accounts, not leading to needless losses, such a panic state can be effectively crippled.

This is all the more needed, given the fact that there is already limited information that is coming from exchanges and the market is rife with unfounded rumors. In order to prevent slow down trading to prevent sell-offs, assurances by the government can help save the day.

crypto investorsWhat also needs to be considered is the fact that most of the investors on the exchange platforms are young and from smaller towns in India. Thus, they have limited financial knowledge of the asset class. Thus given the constricted knowledge horizons, one can effectively state that they tend to panic more, especially when there is such adverse news.

Thus, assurances and moderate actions are the need of the hour. now, whether the government takes that into consideration or not, is something only time will tell, but any further investments into the contentious digital asset will largely not be a sagacious idea.

Tags: Indian crypto traders, cryptocurrency portfolio, crypto investors, crypto bill, private cryptocurrencies, crypto regulation, crypto laws, crypto traders in India, crypto users, crypto market regulation, crypto exchange regulation

bnpl system

BNPL System – a Boon or Bane For Millennials?

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BNPL System – a Boon or Bane?

Credit card and EMI companies are in shackles. All thanks to the recent rise of the BNPL system also known as the Buy Now Pay Later system which is taking the millennials and the young generation by storm.

Gone are the days when people used to pay hefty interest on their borrowing, which was compounded monthly and led to hefty debts. Countering such aversive trends, BNPL has tried to mitigate the woes of working-class professionals with its easy credit policy.

BNPL system on based on the idea of fast credit that is becoming the need of the households given the crippled finances due to the pandemic increased medical expenses, and lower incomes.

To top it all, the festive season too is a major reason for overspending and tremendous use of the BNPL in recent times.

buy now pay lager bnpl systemThough one can state that easy credit is the primary reason for the success of the BNPL model, the widespread adaptation of the digital medium around the world for the specific purpose of shopping has also helped BNPL garner much attention around the globe.

Thus, with easy availability through larger internet penetration across the country and easy credit, there has been an immense increase in spending and also a sense of immediate gratification that the BNPL system is offering.

Therefore, with its widespread popularity, one can emphatically state that BNPL has been a tremendous success in recent times.

Having talked about the buyer side, the seller side is experiencing the benefits of the system. This has led various sellers to make the buying process quite seamless for customers by partnering with various financial institutions, thus growing their consumer base at an increasing rate.

buy now pay laterTrouble in paradise?

But with no hidden interest rates or fee structure, the model seems to be too good to be true and makes one raise questions like whether the model really is a boon for the millennials or are we missing out on something?

Sure, one can state that BNPL is a revolutionary innovation for the individual who has a stable income and is trying to cover extra expenses.

But what about the millennials, who are increasing users of the system? Turns out, it isn’t much of a viable option for them.

The mere reason for such a statement is that the BNPL system encourages overspending. Given the no interest rate or fee policy, the usage of the BNPL option for finances seems like an enticing option for many millennials, who might be attracted to it even for small purchases.

With numerous small sprees of spending and shopping, there is a larger threat of piling debts than face the millennials.

Another reason that makes the BNPL system all the more enticing for millennials is the limit set by e-commerce entities.

Amazon has set the limit to Rs. 7,500-10,000. Thus, with no limits being imposed by the BNPL system, alternatives like Amazon pay are not opted for.

Similarly, the BNPL services of the e-commerce platform can only be availed when purchasing an on the platform, which is a major deterrent for its users, who opt for BNPL through different companies that encourage overspending.

Thus, given the aforementioned threat and dangerous enticement that the model offers, as the adoption rate grows, so do the risks with it.

The problem that ultimately crops up is that while people are largely aware of how this system works, many are quite unaware of the consequences of late payments.

Thus, no matter how many advantages, one cannot overlook the fact that it emphatically promotes consumer debt through overspending or impulse purchasing.

To add to the narrative, it is to be noted that the interest rates are generally not bound by any consumer credit regulations. Thus, welfare, in the end, can be comprised.

The target audience

bnpl modelGiven that millennials are at the risk of exploitation and huge debt what audience can actually benefit from the scheme of easy credit?

It can be stated that the system makes quite some sense for B2B e commerce platforms that can emphatically and effectively provide enhanced BNPL services to their customers to increase their sales.

On the other hand, Wholesalers too who are trying to procure high-priced merchandise or products in bulk can avail the easy credit policy. Similarly, retailers and businesses that procure products or materials before the sale have a large potential to benefit from the scheme.

The future

It is no news that the finances of the economies around the world have been crippled by the pandemic. Thus, as the economies reel from the impacts of the pandemic, one can emphatically state that the future of BNPL firms is unknown.

But given the aforementioned narrative, it can be maintained that the risk of such services remains quite daunting and real for a certain set of customers like millennials.

With the economy still in the nascent stage of recovery, another debt bubble will not materialize well for the economy in the future.

Though in the dystopian world of debt, one can weasel his or her way out by assuring that they save up enough to pay the price of the product in the future.

bnpl services

It is to be noted that fact that BNPL services are relatively a new reform and haven’t reached a wider audience like credit cards and EMI also cannot be denied.

Even though the millennials may be in frenzy about the new, emerging credit option, one cannot deny the fact that the demand for it is likely to go up in the future.

This will especially be true after its robust performance this festive season.

Tags: buy now pay later, bnpl model, digital medium, bnpl services, b2b e commerce platforms, bnpl firms, consumer buying process, bnpl business model, buy now pay later bnpl, buy now pay later business model.

oyo rooms ipo

After Zostel, FHRAI is The Newest Abrasive Hurdle in OYO Rooms IPO.

By Hospitality, Economy No Comments

FHRAI Abrasive Hurdle in OYO Rooms IPO

Trouble has been brewing in OYO’s rooms IPO world as, after Zostel, the Federation of Hotel and Restaurant Association of India has effectively and emphatically urged the Securities and Exchange Board of India to suspend the IPOs proposal for Initial public offering.

Given the ripe market for India’s startup culture, with various mind-blowing IPOs being launched, OYO’s path to being a public entity is fraught with difficulties.

But on what grounds are objections being raised against OYO’s ambitious vision of entering the IPO market? In various pleas, it has been adamantly stated, that OYO has not adequately disclosed everything in its draft prospectus.

Such claims against Oravel come on the grounds of unfair practices and how it is effectively resorting to unfair, fraudulent, and anti-competitive practices and dealings.

These include claims that point toward the narrative of entering into anti-competitive agreements by Zostel to capture the market and abuse its dominant position.

To top off all the anti-competitive narrative that has been demonstrated and articulated by the FHRAI, claims over inadequate disclosures of critical court cases and the valuation of the company have been raised too.

According to the reports, it has been claimed that all the valuation that has been disclosed is not sound or feasible.

Given the humungous amount of backing the company wants to raise, amounting to around a whopping Rs 8,430 crore through an IPO, such hurdles do not seem trivial or less maligning.

Such claims by FHRAI do not speak well of OYO’s growth model which is facing resistance in its very first stage of growth.

The seriousness of the claims can be conjured from the fact that the anti-competitive claims made by FHRAI against Oravel are being investigated and scrutinized by the Competition Commission of India.

oyo ipoThe CCI’s investigation had commenced after a preliminary hearing. According to the reports, the investigation will be directed by the Director-General.

But what do such claims and complaints registered under CCI by FHRAI mean for OYO? It is to be noted that exposure to such a discrepancy can unveil the possibility of a penalty that can be levied effectively by CCI. In fact, CCI also has the power to direct behavioral changes that need to be undertaken.

This can effectively and emphatically have a tumultuous effect on the anti-competitive practices being engaged by Oravel.

Given the aforementioned situation, it would not be an understatement to state that allegations of such levels, with CCI involvement and investigations by the Director-General, can heavily lead to panic amongst investors.

The market is highly speculative that runs on news and environment rather than rationale. Thus, given the recent maligning of the image, it can possibly set a very bad precedent for OYO and help develop a prejudice against the company.

What sets aside OYO’s case more than any other is the fact that to date there has not been a single case where a company that is being investigated by the Director-General of the CCI for anti-competitive practices has been actually permitted to initiate an IPO by the SEBI. For OYO, this can definitely not martialize well.

On top of all the allegations that have been made by the FHRAI, it has also claimed that the company has attempted to avoid a large number of contractual payment obligations.

Such a claim can prove to be the last nail in OYO’s coffin as such contractual payment obligations were to be made towards hotels that are members of the travel body.

In a fiery statement, the FHRAI has even brought Interim Resolution Professional into the picture, where over 113 claimants have registered claims of Rs 160 crore with it. On top of it, OYO again has not disclosed the matter in its filings.

Thus, it can be effectively stated that the cumulative effect of such litigation will not materialize well for the future financial health of Oravel.

Talking about all the corporate discrepancies what about the criminal ones? It might come as a shock to many but the company has been alleged to not disclose the various criminal investigations that are effectively pending against it.

These include its directors and promoters along with its subsidiaries.

oyo ipo newsAll this comes after Zostel’s efforts to plague OYO rooms IPO dream. It is to be noted that the former rival namely, Zostel, is in a more than five-year-long legal battle with OYO.

Thus the recent happenings have led the IPO festivities to be suspended till the discrepancies have been thoroughly scrutinized and examined. According to the reports, this has been done to effectively protect the interest of all the stakeholders as well as the general public.

As aforementioned, OYO’s path to its realization of the IPO dream was already fraught with Zostel. This is due to the fact that even it had approached the market regulator to halt OYO’s IPO earlier this month.

fhrai hotels and oyo rooms ipo

The grounds of its allegation were based on the company’s capital structure, which it claimed was not final. In addition, filing of the DRHP was effectively illegal, in relation to the litigation between OYO and Zostel.

Thus, will OYO be able to overcome the blatant uncertainty and be able to stand its ground in such adverse situations? Given the revelations and the uncertain circumstances, it will be interesting to watch how the case plays out in the future.

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ipo season

The Rise of the IPO Season in India

By Economy, Others No Comments

IPO Season 2021 in India

India in recent months has been witnessing spectacular, blockbuster IPO debuts. The debuts are being made by some of the very leading companies like Zomato, Nykaa, Mrs. Bector, Happiest Minds, Burger King, etc.

Thus, it can be rightfully stated that such robust IPOs are ushering in a new era of realizing the full potential of the startup culture in India.

ipo season 2021

Like the western countries, the startup culture in India is booming. This fact can be corroborated by pieces of evidence of astonishing IPOs being carried out in the market, the great pompous that surrounds them, and the public’s willingness to invest leading to overvalued stock.

It can be seen that the market is bullish, so much so that Zomato, which was a loss-making company, had its stock overvalued in the market with quite some buzz that was created around its name.

But, here it is worth mentioning that Zomato has emphatically ushered in the IPO season 2021.

An online food tech company going for an IPO in a competitive market sparked much confidence in others. thus, Zomato’s first step and Indian stock markets that are quite bullish this year emphatically led to the country’s emerging tech startups effectively gearing up their confidence.

This confidence was geared up encouragingly knocking on the doors of the public markets.

ipo debuts It is to be known, that 2021 isn’t the only year that saw a burgeoning IPO, 2020 too ended with two hot techs IPOs, but in the US stock market.

These were namely Airbnb and DoorDash. Thus, it can be rightfully stated that the amazing, gratifying success of these IPOs surely had an impact on the Indian investors.

On the other hand, this also led to the strengthening of their belief in technology startups.

 Thus, it is quite stratifying to decipher that the Indian IPO market has finally realized and deciphered the great potential of startups. These startups can be said to have been disrupting traditional ways of business.

One can also say that such a hunger in the market can be due to the burgeoning profits that such companies had earned during the pandemic. the avarice of such gains can also be a driving force to garner a large market share in different segments.

It is to be noted that 2020 and 2021 were unconventional years. With lockdowns and restrictions plaguing the economy, unusual and unconventional ways of business paved the way for the conducting of business activities.

On the other hand, the high exuberance in the market which made Zomato’s IPO an amazing success has inspired many to go for the same. This claim can be corroborated by the fact that all the recent IPOs, be it Zomato, CAMs, Route Mobile, Burger King, and Happiest Minds have all been effectively oversubscribed many times over and debuted with high multiples.

The government

But given the recent boom in the market, how is the Indian government coping with the recent, newfound mechanism of profit that is unfolding in the startup culture? It is to be noted that the Indian government seems to be, quite cheerfully, welcoming such tech IPOs.

In fact, India’s market regulator Securities and Exchange Board of India (SEBI) has effectively set up an Innovators Growth Platform. On the other hand, it has encouraged, through its recently announced consultation paper, that it is seeking comments for the new rules that will emphatically encourage startups to head for IPO.

 It is to be noted that companies opt for IPOs when their investors, who throughout their funding process need an exit.

ipo market

Thus, given the circumstances and the trend in the IPO market, it can be rightfully stated that there are certain healthy tailwinds that are emphatically pushing startups towards IPO. The IPOs in the market are moving towards fundraising and to emphatically provide investors, as aforementioned, with a healthy exit.

But this gives rise to a pertinent, inquisitive query, what norms or regulations are actually supporting such techs to opt for IPOs?

It is to be noted that new norms that were announced by the SEBI are the answer. Its newer norms have provided regulations and framework for easier migration to the mainboard, special rights that come with IPO, and decreased holding period. Such norms are definitely making launching IPOs more lucrative in the market.

Also, the market is doing its magic as usual. With the cautious approach of the RBI and yields low in the bond market, many investors have moved to the stock market to incur high profits.

ipo market 2021

This is the very emphatic reason that IPOs are overvalued and are being sold at a higher price with so much buzz around them. The main contributor to the same has been the financial literacy that has grown in developing countries like India, which has also contributed its part.

Thus, lastly, it can be stated that the IPO market is on the boom right now with various tech companies opting for healthy financing. But how long will the exuberance surrounding the IPO season last, is something we will have to wait and decipher.

Tags: ipo debuts, startup culture in india, ipo market, rise ipo, ipo market watch, ipo market 2021,
ipo season, ipo grey market, ipo season 2021

gst rise in india

What Will Be The GST Rise in India For Multinationals Means?

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GST Rise in India For Multinationals

India is a country where multinationals usually find their future quite uncertain and rapidly changing. Given the democracy that India is, with a government that considers regulation as its strong suit, such a thing can be expected. In the latest turn of events, the tax department in India has targeted or rather pointed towards the new regime of taxes that can be levied on the multinational fast food and hotel chains and tech companies. These are those multinationals or tech companies that effectively operate through the model of the franchisee in India.

But what part of their income has come under the taxmen’s lenses this time? Under scrutiny, this time is the royalty income of such multinationals. Here, the indirect tax department has emphatically raised questions on the pertinent nature of the agreement of these multinationals with their franchisees. It is here to be noted that the income tax department is effectively demanding higher GST given the nature of agreements that have been signed between the multinationals and the franchise.
But this might give rise to a pertinent question how is a multinational different from its own franchise? The answer is that it isn’t. it is here to be noted that under these franchisee models the multinationals allow Indian companies to actually operate them. These could lead to the management of hotels, entities, and stores by Indian companies under their global brand name. Against this arrangement or franchise model, these multinational companies charge a percentage of profit or you can effectively call them royalty or any other income.

But is this amount paid invariably? Not quite. This royalty tax that is being earned by these multinationals comes under the regulatory ambit of the Indian authorities. According to reports, most multinationals pay up to 12% Goods and Services Tax on such royalties. But, given the present scrutinization, the tax department is emphatically is trying to impose an 18% GST on such royalties.

Why such scrutinization?

The alleged revised GST collection of tax leads to a pertinent question what gave rise to such an analysis? It is to be noted that higher tax is being sought as the GST for payments that come under the “right to use” of the brand name is a mere 12 percent, but when this is compared to “transfer of the right to use”, the GST tax rate is actually18 percent. Thus, all the multinationals that were paying the applicable GST of 12% were because they claimed that they had not transferred the brand name or had effectively allowed the Indian entities to use their brand name permanently.

gst rise in india meansThis mainly comes due to the controversy that prevails between the terms ’use rights’ and ’transfer of use rights. What actually leads to the discrepancy is that the tax department actually considers taxing both categories differently.

It is to be also noted that in India, not one but several multinational companies effectively operate under varied franchise models.

One other characteristic that is responsible for the taxman’s lenses on the multinationals is that most multinational chains mainly fast-food chains, tend to operate in grant microgeographic-based exclusivity. This effectively means that various franchise stalls can be installed at various geographical locations. Not only the fast-food franchise works or operates on this model, but mobile phone companies also try to adopt similar franchise models in terms of “exclusive brand stores” or “app stores”.

The tax department alleges that such models that are usually adopted by multinationals are used to essentially save taxes and escape the tax ambit of India. On the other hand, the tax department effectively wants to want to scrutinize the multinationals using the hardcore principles of “entity over form”.

As per the reports the newer taxes can also be levied on the software companies. Such a tax that can be levied on the multinationals will effectively lead to ambiguity in the Indian tax law that cannot be too accommodative for foreign investments. Given that India is currently recuperating from the covid debacle, FDIs are crucial for momentum.

What makes this matter even more intricate is that in this situation it is very crucial to firstly distinguish between goods, effectively known as permanent transfer, and service, known as a temporary transfer.

As aforementioned, this could materialize into a thorny issue as tax applicability is a sensitive issue for the multinationals that effectively operate in countries where such high taxes can be skipped. India being the most sought-after investment destination can put many multinationals in troubled waters with its uncertain tax laws regulating them.

gst tax rateIt is not the first time that the Indian tax department has touched upon this sensitive issue. Previously, the Indirect Tax Department had beseeched or inquired some multinational corporations and foreign banks whether they will allow their entities and subsidiaries to use the brand name. Consequently, in the interest of the Indian entities, the inquiry was made into whether compensation had been duly paid for the use of the brand by a subsidiary.

For a long time, now many multinational companies and foreign banks have been under the tax department scanners. However, the issue was not carried forward due to the pandemic disrupting the functioning of the department. But with now the situation stabilized, the Income Tax department is ready for its sleuthing. What will be the future of the multinationals in India will be something we will decipher only in the future.

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central bank digital currency

Will Central Bank Digital Currency Be a Game Changer?

By Economy, Banking No Comments

Central Bank Digital Currency

Given the rise of digital currency the previous year, it is to be noted that it has spiked the interests of many for investments, even though it might put them on the wrong side of the law and at odds with the government. Given such a spike in the public’s interest, it is quite right to see that the interest of the regulators to regulate the unpredictable market has also spiked. This has effectively led the world’s central bankers to begin discussions on the idea of central bank digital currency.

On the other hand, countries like El Salvador and Miami have shown their burgeoning interest in the crypto that has led even the International Monetary Fund and its managing director to talk openly about the pros and cons of the contentious digital currency.

This conversation should also take into consideration the fact that cash is hugely being used less and less in various other countries. At the same time, digital payment systems in various countries will essentially give CBDC tough competition. Various payments apps like PayPal, Venmo in the West; Alipay and WeChat in China, and Paytm in India can offer attractive alternatives to the central bank’s services and initiatives.

central bank digital currencyBut here it is to be noted that only commercial banks have the access to central banks’ balance sheets. This also effectively includes that central banks’ reserves are already held as digital currencies, this is why central banks will be more efficient and cost-effective than any other payments platform in mediating interbank payments and lending transactions.

Given that no other individuals or corporations enjoy such unhindered access, they too must rely on licensed commercial banks to process their own transactions. Thus central banks have an upper hand in processing payments and transactions and thus a more reliable digital banking system.

Talking along similar lines, RBI too recently indicated the fact that it too is considering a phased introduction of a central bank digital currency (CBDC). Given that the unregulated black market is booming under the vigilance of the central regulator, it has become quite mandatory for the RBI to regulate the uncanny market.

Thus, the introduction of a CBDC will fundamentally do just that, it will change the archaic, fundamental currency and payments ecosystem. But given a certain amount of freedom that will be provided in such a model, RBI will be seen as assuming a greater role as the issuer of digital currency.

It is to be noted that an introduction of CBDC will revolutionize digital payments as digital currencies are currently able to effectively penetrate remote areas. This is because a user only needs internet connectivity and a mobile phone to transact using a digital currency, thus CBDC will help penetrate the banking system not only in urban areas but also in rural areas. 

Another enticing advantage that will be included in the model will be a high convenience factor, which would be unconventional given the bank’s lengthy transacting procedures that are a canker for its users. A regulated CBDC will help keep the model safe, and low-cost, thus making the payment experience convenient. The low-cost model will not be only beneficial to the end consumer but also to banks as lower costs will be incurred for printing paper currency.

Another area where a CBDC can significantly and effectively reduce time and settlement risks in cross-border transactions. And it is to be noted that once the domestic model and cross-border transaction regulatory framework is set up and well-defined, the market can positively and optimistically expect a lot of product innovation in a similar space.

 It is to be noted that once CBDC will be regulated and will be under RBI’s scrutiny and vigilance it will be essentially given legal tender that will be issued in a digital form. Some of the other key benefits of CBDC have already been achieved via UPI-based payment products. Given, that CBDC will be regulated, it will essentially lower systemic risk and will help introduce diversity and innovation in digital payments.

central bank digital currency rbiThough, it is to be noted here that RBI, as the issuer of CBDC, will effectively decide whether CBDC tokens will be interest-bearing and whether the ability to “convert” CBDC to physical cash shall be given or not. Additionally, RBI will also decide upon the degree of anonymity that will be associated with the use of CBDC, which seems quite unlikely as anonymity of character is what will render RBI’s vigilance and analyzing program useless. 

Additionally, RBI’s role in the mole restructuring will be quite prominent as its choices will determine the severe implications for the digital payments ecosystem in the economy. Well, it will depend on RBI whether CBDC should be utilized for both retail payments or should its usage be limited to wholesale payments for transactions only. Father, RBI’s sagacious amassing tools will only determine whether CBDC be issued via an account-based or a token-based model.

But this gives rise to an inquisitive question that how will the model work whether the settlement and interfaces in connection with a CBDC be undertaken solely by the central bank itself or will the roles of private banks in the banking and payment systems be invariably changed? Once a wider consumer base for CBDC is built, a reduction in bank deposits would directly and indefinitely affect the pricing of and access to credit. This is when RBI would have to factor in other commercial banks to share the burden. 

Thus, the decision to introduce a CBDC  to not includes higher analysis and scrutinization. And what really such a centrally monitored digital currency brings to the economy is yet to be deciphered.

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npa crisis in india

IBC and The NPA Crisis in India: A Ray of Hope?

By Economy, Banking 2 Comments

IBC and The NPA Crisis in India

One can describe India’s banking and financial sector to be plagued by the NPA crisis, which is, at the moment, eating away at the robust edifice of the system. It is no news that a stable, robust financial sector is a prerequisite demand for the smooth functioning of an economy or any business. Secondly, a strong financial sector of the country provides immense and much-needed confidence to its investors and consumers which are the driving forces in the economy.

The last financial year, for India, can be best described as aversive and crippling, especially when its economy is taken into consideration. The odious pandemic had adversely affected the country’s GDP, so much so that India saw itself slipping into a technical recession after decades.

But it isn’t quite an exception for India as various countries across the world have also tasted the bitter crippling of their economies too. But what sets India as an exception is its already crippling banking sector which was plagued with incessant NPAs long ago.

To put this scenario in perspective, the 21st issue of the Financial Stability Report (FSR) by the Reserve Bank of India should be quoted. The report emphatically presented a grim, striking picture of the status of Non-Performing Assets (NPAs) in the country.

The stress test conducted by the Reserve Bank of India (RBI) shows the ill health of the Indian banking sector which is all set to worsen given pandemic has crippled consumer’s and debtors’ ability to pay back their dues. Thus it can be rightfully stated that the report is indicative of the fact that the challenging situation, that is being posed by COVID-19, could result actively and effectively in higher Gross Non-Performing Assets (GNPA) in the future.

According to reports, the GNPA increased to a whopping 12.5 percent in March 2021 compared to 8.5 percent in March 2020. This emphatically points toward the deteriorating health of the Indian financial sector which will surely have an adverse effect on the economy and investors’ confidence which can spell doom for the economy. As per Standard and Poor’s estimates (June 2020), gross NPA could rise to 13-14 percent for India.

It is to be noted that the government’s response to the pandemic, to lower the debt burden on the micro sectors will emphatically lead to an adverse impact on the banking sector. This is due to the fact that moratoriums on payments by micro-industry were placed and were later extended.

The put the scenario in numbers, RBI, the central bank, had proposed a three-month moratorium in March 2020 along with a freeze on ratings of customers who were availing of the loan. Consequently, given the intense state of the Indian economy, the moratorium period was further increased to August 31, 2020.

the npa crisis in indiaThis was done as a part of the stimulus package. Simultaneously, various loans, in order to revive the economy were placed out. Thus, the government’s amalgamation of fiscal, monetary, and regulatory interventions that ensured the almost normal functioning of the Indian financial markets can be called a recipe for disaster for future troubled banks of India.

Is the need for incessant restructuring required?

According to reports, at end of April 2020, 50 percent of the debtors had availed of the moratorium facility. But since then the number has dropped, as, at the end of June 2020, only 30 percent were shown to have availed of the moratorium facility. Thus, providing incessant restructuring and blanket moratorium facilities to all would be a fault that the Indian authorities should not commit.

What emphatically is needed now is a calibrated approach of stimulus to be provided by the RBI. The approach should include only those sectors which are still bearing the brunt of the pandemic. A blanket approach to all is what one would call an ill-advised policy, as various analyses show that individuals and corporates are taking undue advantage so such policies.

IBC- India’s solution to its NPA crisis

IBC can be best described as a game-changer and a transformational reform in the Indian banking sector. One can even describe it as a code that is a one-stop solution for resolving insolvencies that are plaguing the Indian banking sector. According to various banking analyses, the IBC, which can be effectively initiated by the debtors or creditors, has shown constructive results in regard to NPAs.

The most important aspect of recovering loans is the percentage of the bad loans that can be recovered so that banks don’t have to bear a huge brunt. But taking this problem into consideration, IBC is well versed to retract debt that various banks have lost.

According to the RBI’s report titled Trend and progress of banking in India 2018-19,  the amount that IBC recovers as a percentage of the amount involved has been much higher, standing at a significant 49.6 percent in 2017-18. Compared to recovery by various other archaic, traditional bodies like Debt Recovery Tribunals, the percentage of recovery is quite high. Thus it can be rightfully stated that IBC has emphatically proved itself to be a masterstroke in curbing the bad loan crisis in India. 

Additionally, it is to be noted that the restructuring and liquidation of bad loans, if done in a timely manner will open up new vistas for foreign and domestic investors to invest sagaciously and pompously in distressed Indian assets. It is no news that timely resolution and resolving insolvencies creates a much-needed conducive environment for investors and helps attract impressive foreign portfolio investments.

However, a certain revelation, in light of the pandemic, needs to be made that corrective and growth response to the blow inflicted by the pandemic on various sectors, the Insolvency, and Bankruptcy Code proceedings had been suspended for one year.

This was done so that companies would not be dragged into judiciary proceedings at the time of financial crippling and disaster. Additionally, it is to be noted that the minimum payment threshold for the effective triggering of bankruptcy proceedings against the defaulting party has been increased to Rs 1 crore as compared to Rs 1 lakh earlier.

Lastly, the most prominent and prerequire aspect that must be kept in mind is that the IBC is not an answer to all banking issues as it is a disaster management scheme and not a preventive one. With various other financial instruments like Know Your Customer (KYC) norms, it is possible for banks to effectively and emphatically ensure that their customers have the capacity to repay the loan.

It is quite a fact that the capacity to repay is a rudimentary requirement for no defaults in the future and smooth functioning of the banking sector. Thus, bankers should be consistently and effectively monitoring and actively assessing risks associated with their customers through the KYC financial tool, so that required action can be initiated. 

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retrospective tax law

Retrospective Tax Law: Good Radiance To a Bad Taxation Approach

By Economy, Corporate Law, Banking, Others No Comments

Retrospective Tax Law – Good Radiance to a Bad Taxation

Retrospective Tax Law: In an interesting turn of events, India is all set to end its retrospective tax. The retrospective tax was a tax of special capital gains that was extracted from the sale of assets located in the country by the entities that were registered abroad.

The crackdown on companies came at the back of the fact that many escaped paying taxes to India while transferring assets to the country. To be more specific, the statute was criticized after a series of significant setbacks in arbitration disputes. Retro tax demands were challenged in these arbitration disputes by companies like Cairn Energy and Vodafone.

Quite ruefully, the Indian government, which has been fighting for taxes for years now, will also refund the money that had been collected on the basis of retrospective taxation. However, it should be highlighted that the Indian government will do so without charging interest if certain conditions are met.

In reality, the international business community has been calling for an end to retrospective taxation for a long time. This is because, once the retrospective tax is abolished, it will effectively remove businesses’ undue anxiety about India’s massive, crushing corporate tax liabilities which effectively cripple investments in India.

Will there be any effective future scope for retrospective tax in the country after its nullification?

The Indian government’s action raises the intriguing question of whether the retrospective tax would have any future application in India. Given that the government is modifying the Income Tax Act of 1961 through the Taxation Laws (Amendment) Bill, 2021, it will be done in such a way that future retrospective tax demands would not be possible. This was done because the new amendment bill causes tax claims to be nullified if they were made before May 28, 2012.

Surprisingly, the President had given his assent to the financial bill 2012 on this date. As a result, it is reasonable to conclude that the most recent modification will render the retrospective bill obsolete. Though it is to be noted that this certain defeat that has been claimed by the government will cost the government US$1.2 billion, just by refunding the claims of Cairn Energy.

The legalities

The amendment bill also effectively and emphatically proposes to amend the Finance Act, 2012. This will be amended to strategically provide the validation of demand, etc. It’s worth noting that, if certain criteria are met, section 119 of the Finance Act of 2012 will be effectively repealed. The withdrawal of pending litigation is one of the stipulated criteria, as is a strategic undertaking that no demand for cost, damages, interest or other fees will be filed.

What is the need to introduce the bill right now?

Why is India now bowing out after fighting for its dues for so long? It should be mentioned that the Indian government’s taxes bill 2021 is a major endeavour to effectively ensure that the idea of tax certainty prevails in India. For years, the retrospective tax has been a major disincentive for foreign investors who believe it is the cause of tax uncertainty in India, making the investment climate in India unfavourable. As a result, international investors and multinational corporations operating in India have long requested such favour in order to give tax certainty.

Furthermore, it is fairly obvious that the high-profile tax arbitration disputes between Cairn Energy and Vodafone have severely harmed India’s reputation as a business-friendly nation. This substantially negated the benefits of bureaucratic reforms and harmed India’s plan to expand industrial production and upgrade infrastructure.

This comes after the Indian government lost an international arbitration in December 2020 over the taxation of Cairn Energy PLC retroactively. On the contrary, the tribunal had effectively ordered India to return the value of shares it had invariably sold while claiming its tax.

This also included dividends seized and tax refunds that were withheld to recoup the tax demand. In a similar case, the Indian government had again lost against Vodafone, citing it as a “breach of the provision of fair and equitable treatment” that was essentially secured by the bilateral investment protection deal signed by India and the Netherlands.

However, here it is to be highlighted that the Indian government’s liabilities, covering all the legal costs in this matter are significantly less. This is due to the fact that in this case, the Indian government had not taken action to recover the retro tax demand from Vodafone. Thus, to state that India has ended its humiliating losing streak against international companies would be an understatement.

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