XED CA Finance Newsletter Week Aug 02- Aug 08

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    NEWSLETTER

    5 Pages 02nd Aug 2012 08th August 2012 www.xedintellect.c

    BUSINESS NEWS

    ECONOMIC INDICATORS 2 COVER STORY 3 PERSONALITIES OF THE WEEK 4

    INDUSTRY ANALYSIS 5 NEWS ANALYSIS 6 JOB PROFILE 11 FINANCE NEWS 13

    NEWS DIGEST

    IN BRIEF

    PERSONALITIES OF

    THE WEEK

    INDUSTRY ANALYSIS

    MCX GOLD

    (8th Aug)BSE SENSEX

    (8th A

    ECONOMICINDICATOR

    Worst may be over forIndias best airlines

    COVER STORY

    Banks to accept spectrum

    as collateral

    GLOBAL & MISC. NEWS

    Corporate debt ratio hasreached dangerous

    levels in China

    PChidambaram

    GGAAAARR((GGEENNEERRAALL AANNTTII AAVVOOIIDDAANNCCEE

    RRUULLEESS)) EEXXPPLLAAIINNEEDD

    FINANCE NEWS

    Join us on Facebook

    PART ONE

    Dr. VMa

    INDIANTELECOM INDUSTR

    http://www.facebook.com/pages/Xed-News/129116230504612
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    MCX Gold 29,983 per 10 grams (8th August) Source: Moneycontrol, ReutersAs a precious metal gold plays an important role in most economies. It is often used as an investment and a way tohedge risks by some. India is the largest retail buyer of Gold and as such its prices are influenced by indicators like

    rupee value and general business sentiment. Gold prices tend to go up as India approaches the festival season.

    With the dollar becoming stronger and uncertainty looming large in the Euro zone, Golds price increase has sloweddown a bit. This has reflected in India as well where a relatively weak monsoon has also played a part in the drop indemand. The rupees situation has also become better after the veritable crash it saw which in turn has slowed Goldsrising price. It has been trading in the range of 29,851-30,025 in August so far.

    BSE 30 17,601 pts (1.1% higher) (8th August) Source: Reuters, FirstpostThe stock market takes its cues from a lot of different factors. Global market performance, financial results of bigcompanies, government policy announcements and even natural or man-made disasters impact the stock exchange.

    On 7th August, the markets rallied to a four month high as the newly appointed finance minister P Chidambaramreaffirmed his position on tackling the high fiscal deficit and hinted that he might pressure RBI into easing lendingrates. As such stocks of banks like SBI saw an upsurge. Declaration of strong financial forecasts by IT majo

    Cognizant revived sentiment in other IT stocks such as Infosys. How long the upsurge lasts remains to be seen as theoverall scenario is still uncertain in EU.

    he balance of trade is thedifference between themonetary value of exports

    and imports in an economy over acertain period of time. A positivebalance of trade is known as atrade surplus and consists ofexporting more than is imported;

    a negative balance of trade isknown as a trade deficit or,informally, a trade gap. Indiareported a trade deficit equivalentto 10303 Million USD in June of2012. Historically, from 1994 until2012, India Balance of Tradeaveraged -3739.1 Million USD reaching an all time high of 491.3 Million USD in November of 2001 and a record low of-19644.0 Million USD in October of 2011. India is a leading exporter of gems and jewelry, textiles, engineering goodschemicals, leather manufactures and services. India is poor in oil resources and is currently heavily dependent on coaand foreign oil imports for its energy needs. Other imported products are: machinery, gems, fertilizers and chemicalsMain trading partners are European Union, The United States, China and UAE.

    T

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    What is GAAR? It is a set of rules proposed to reign in tax avoidance. The governmentseems to have set its eyes firmly on the additional money that it can make via taxing theinvestments, which according to it, happen with the sole intention of tax avoidance. Theproposed guidelines however have created a commotion due to their susceptibility tosubjective interpretations, leaving thus, the investors at the mercy of tax authorities.

    What it contains?GAAR can be applied to any business arrangement if:

    it creates rights and obligations that are not normally created between partiesdealing at arms length.

    it results in misuse/abuse of tax law. it lacks commercial substance. it is not employed for a authentic purpose.

    Such an arrangement or even if a part of the arrangement is found to obtain tax benefit, the entire arrangement istermed impermissible. The vagueness of the GAAR can be best understood with an example. Consider for instance,that a person makes capital gains and invests money in bonds that qualify for a tax break. Tax authorities mightargue that the whole purpose of the transaction was to avail the tax benefit which is why the person chose bonds anddidnt invest in other equally lucrative securities. Consequently, he falls under the purview of GAAR. Equ ipped withGAAR, tax authorities can:

    disregard/combine/re-characterize whole/part of the agreement. disregard corporate structure. deny treaty benefit. re-assign place of residence/ status of assets or transaction. re-allocate income, expenses, relief etc. re-characterize Equity-debt, Income, Expenses, relief etc.

    FIIs seek exemption:The subjectivity of the GAAR rules have left FIIs with much to ponder about. PE funds thathave routed their investments through tax havens like Mauritius toavail tax benefits under DTAA (Double taxation avoidance treatyare particularly stumped. GAAR outlines that, while interpretingtax legislation, substance is more critical than legality. If it occursthat the sole purpose of routing investments through such taxhavens is to avail tax exemptions and there is no other rationalthen GAAR provisions would not allow it. Initial draft of GAAR ruleswent a bit far and presumed that tax avoidance is the sole purposeof an arrangement unless proved otherwise by the taxpayer

    Technically it means, tax authorities on reasonable ground obelief, can accuse you of eating into taxes and then the onus lieson you to prove yourself innocent, rather than them proving youguilty. However amid loud ruckus, this provision has beenremoved and the onus of proof is shifted back to the taxauthorities.

    Representatives of the Indian Private Equity and Venture Capital Association (IVCA) have put forward a three prongedtest- expenditure test, employees test, and residency test- to establish this commercial substance. Under theexpenditure test, the average of previous two years expenses onoperations should be more than $50,000. The employees teststates that the overseas entity must have a full time employeewho has stayed in the treaty country for at least six months,pays taxes there and is actively involved in the investment and

    operating activities of the fund. Residency test mandates that atleast two directors should be from the treaty country, and theauditing is done by their statutory auditor. A tax residencycertificate issued by the local tax authorities would also benecessary. FIIs seek exemption from GAAR if any one of thesethree conditions is fulfilled.

    Conclusion: Parliamentary standing committee hasrecognized the gravity of GAAR and asked for an independentbody for approval of invocation of GAAR by the taxCommissioner. The bottom line is that it should not affect bona-fide transactions under the guise of fair taxation.

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    P Chidambaram Current Union Minister of FinanceP Chidambaram took office on August 01, after Pranab Mukherjee was appointed as the Presidenton India. A week after his appointment, the Finance minister has assured that India will be back onits path of recovery soon. Chidambaram has the onerous task of inducing growth in an economymarred by high inflation & interest rates, low inflow of foreign investments and policy flip flops. Hhas come up with a mid-year plan, which includes taking corrective actions to revamp fiscal policy& rebuild investor confidence by reducing interest rates & incorporating a stable tax regime. He isworking on fine tuning tax policies that would increase capital inflow in the country and ha

    reassured that India will see investments go up to 38% and savings up to 36% of the GDP, atarget that was achieved before the 2008 economic crisis.

    Chidambaram was born in the royal family of Chettinad, Tamil Nadu. He is a lawyer by profession& acquired his MBA from Harvard Business School. After completing his education, Chidambaram

    joined the High court in 1968 as an advocate. By 1984, he had practiced in High Court as well as inthe Supreme Court as a senior advocate. His career in politics started in 1985, when he waselected for the first time as a member of Lok Sabha. Since then he has worked his way up in theIndian National Congress. He served as the Deputy Minister in the Ministry of Commerce duringRajiv Gandhis reign. He was also appointed as the Minister of Personnel, Public Grievances andPensions.

    Indias Economic Reformist!!! He is one of the most respected & senior member