Companies planning to go in for foreign investments may need to consolidate their shareholding to develop one single largest shareholder. The government will specify a minimum percentage of shareholding, which must be achieved by the domestic largest shareholder. This has been done to put an end to foreign companies gaining complete control of Indian companies due to the often-fragmented domestic shareholding patterns. The Government will start this exercise in sensitive sectors like telecom, financial services, aviation and infrastructure and later extend it. The new rule would apply to these sectors, where the foreign investment is less than 100%.

It has been decided, as a sector specific measure, to enhance the limit for direct receipt of import bills / documents from USD 100,000 to USD 300,000 in the case of import of rough diamonds. Category - I banks are permitted to make remittances for imports, where the import bills / documents have been received directly by the importer from the overseas supplier and the value of import bill does not exceed USD 100,000. Further, in terms of i.c. of the Annex to the aforementioned circular, status holder exporters, as defined under the Foreign Trade Policy are permitted to receive import bills / documents directly from the overseas supplier irrespective of the value of the import.

• Red Herring Prospectus (in case of book built issue) 
• Prospectus (in case of fixed price issue)

registered with the Registrar of Companies or the letter of offer filed with Designated Stock Exchange, as the case may be, with SEBI and stock exchanges instead of filing draft offer document.

• at least 50% of the issue being subscribed by QIBs, and 
• the balance to other categories of investors at the discretion of the issuer, which shall be disclosed in the prospectus.

Stock market regulator SEBI is considering a uniform face value of one rupee for shares of listed companies. The proposal to mandate a face value of Re.1 for all shares has been mooted by SEBI’s Primary Market Advisory Committee (PAMC), an official said. The proposed change would require an amendment to the SEBI (DIP) guidelines.

The Securities and Exchange Board of India has issued entities no-objection certificates to set up electronic systems for the order matching of corporate bond papers. This means companies and investors can transparently trade bonds on exchange platforms to arrive at the best possible prices. The move will also create conditions for the listing of bonds on exchanges. SEBI has already allowed BSE, NSE and other recognized stock exchanges with a nationwide network to set up corporate bond trading platforms. This is part of the overall plan to widen and deepen the debt market.

A currency futures contract is one where two parties agree to buy and sell the currency at a future date at a predetermined price. Indians may soon be allowed to participate in exchange-traded currency futures instruments that will allow them to take positions on the future value of the rupee. The Central Bank released a report by an internal panel, which has recommended the introduction of currency futures to be traded on dedicated exchanges. The recommendations could spark a turf war as it proposes that RBI will retain the right to regulate all aspects of trade even though securities exchanges are the domain of SEBI.

The Securities and Exchange Board of India had made a slew of amendments to its Disclosure & Investor Protection (DIP) norms. The market regulator has now allowed retail investors to participate in Indian Depository Receipt (IDR) issues after half the issue is subscribed by Qualified Institutional Buyers (QIBs). The regulator has reduced the minimum application value in IDRs from Rs. 2 lakh to Rs. 20,000. Previously, only QIBs could apply in IDR issues. SEBI also permitted companies to make public issues of securities to retail investors and retail shareholders at a discounted price. However, such discounts should not exceed 10% of the price at which the securities are issued to other categories of investors.

The Supreme Court has upheld the validity of Accounting Standard 22 prescribed by the Institute of Chartered Accountants of India (ICAI) on deferred tax liability of listed companies. The apex court dismissed a bunch of petitions filed by various companies which had challenged mandatory adoption of the accounting system, saying that it is necessary in the era of mergers and acquisitions where fair valuation principles have an important role to play.

America’s capital market regulator, the Securities and Exchange Commission, on November 15 decided to accept financial statements from foreign private issuers in the US without reconciliation to US GAAP if they are prepared using International Financial Reporting Standards (IFRS), which are followed in more than 100 countries. This will reduce the compliance cost of companies that want to go public in the US. “US accepting financial statements by foreign private issuers prepared as per IFRS is like the fall of Berlin Wall in the history of global financial integration. A uniform global accounting standard means that companies getting listed in different countries are not required to prepare different sets of financial statements. This would reduce compliance cost and enhance capital flows.

Starting March 31, 2008 banks will have to disclose their pension liabilities in their balance sheets. Under AS 15, banks are required to disclose on their balance sheet the provision for long-term employee benefits after actuarial valuation According to the clauses in the Accounting Standard, these liabilities should be charged to the profit and loss account of the employer. Banks have two options, either to recognize the liabilities in a single year or stager it over several years. They are yet to take al call on this. State-owned banks may find it difficult to raise capital if they choose to service their pension liabilities out of their reserves, as mandated under new accounting changes. Reserves are a part of Tier 1 capital, and Tier II capital is limited to 50% of Tier I capital. Therefore a reduction in reserves will lead to a reduction in Tier I capital and hence limit which can be raised. Capital through debt instruments, such as nonconvertible preference share, is classified under Tier II capital.

An amendment by way of limited revision to Accounting Standard (AS) 15, Employee Benefits (revised 2005), has been made with a view to provide, inter alia, an option to an entity to charge additional liability arising upon the first application of the Standard as an expense over a period upto five years with a disclosure of un-recognised amount. The Council of the Institute of Chartered Accountants of India has decided to give a one time option to the entities which have followed the treatment prescribed under the Transitional Provisions prior to the above-stated amendment to adopt the alternative treatment, allowed by way of the said amendment, from the date the Transitional Provision was so applied. An entity is, however, allowed to exercise this option only during the first accounting year commencing on or after 7th December, 2006. In case an entity chooses to adopt the option, the earlier accounting treatment followed in this respect should be reversed.

India may go in for a dual Goods and Service Tax (GST) system at the Centre and State levels. The Empowered Committee has accepted the report on GST submitted by the joint working group which has recommended adoption of dual GST. Under the dual GST model, to be implemented from 2010, there could be more than four rates of taxes on goods and services. For example, there will one or more tax on goods, but one rate for services at the Central level. Similarly, there will be one or more tax on goods, but one rate on services at the State level.

Exporters tax Relief

• Customs on intermediates for PSF & PFY cut from 7.5% to 5% and on paraxy lene (a raw material for PTA) from 2% to nil.
• Storage and warehousing services, specialized cleaning services (fumigation & disinfection) and business exhibition exempt from service tax.
• Additional interest subsidy of 2% for exporters of leather, handicraft, marine products and all categories of textiles, excluding man made fibre, for pre-shipment and post shipment credit.

The tribunal in the case of Mentor graphics ltd. v/s assessing officer contended that transfer pricing is not an exact science in which mathematical certainty is possible. It needs to be prima facie shown that the transaction was properly examined, comparable prices were objectively fixed, in a bona-fide, honest manner as required by law. The ruling gives a direction to transfer pricing officer that once taxpayers undertake appropriate due diligence, their analysis cannot be arbitrarily rejected during audits based on inferences and presumptions.

Non-resident companies selling shares in off-market deals will have to pay only a flat 10% tax on long-term capital gains, the Authority for Advance Ruling (AAR) has ruled. The 20% rate demanded by the income-tax department is not in order, it has said. The AAR decision is in sharp contrast to a 2006 ruling by a division bench of ITAT comprising KC Singhal and AK Gorodia, on a similar issue. The bench had said the capital gains tax on such deals is 20%. The AAR, in the order on application by the French firm Timken France SAS, has now ruled that the concessional rate of tax at 10%, available to Indian companies on such transactions, would be also available to non-residents as well. The French company sold its entire stake in an Indian company NRB Bearings in 2005. The shares originally purchased in 1986 were sold to the promoters of the Indian company in 2005 at Rs. 55 crore. According to the Income-Tax Department, residents are allowed a concessional rate of 10% because they have an option of choosing a higher rate of 20% with indexation benefits. Indexation is not available for non-residents, but, there is an inflation protection for non-residents through the provision in the Income Tax Act that allows them to convert the consideration of the sale in the foreign currency-the currency in which they originally purchased the shares. Hence, non-residents are liable to pay capital gains tax at 20%.

Requirement of Credit Rating: For public/ rights issues of debt instruments, SEBI (DIP) Guidelines, 2000 presently stipulate credit rating to be obtained from not less than two credit rating agencies. With a view to reduce the cost of issuance of debt instruments, it has now been decided that credit rating from one credit rating agency would be sufficient. Requirement of Below investment limit: SEBI (DIP) Guidelines, 2000 currently require that the debt instruments issued through a public/rights issue shall be of at least investment grade. In a disclosure based regime, it should be left to the investor to decide whether or not to invest in a non-investment grade Debt Instrument. Given this, and in order to develop market for Debt Instruments, it has been decided to allow issuance of bonds which are below investment grade to the public to suit the risk/return appetite of investors. 

It has been decided to permit domestic oil marketing and refining companies to hedge their commodity price risk to the extent of 50 per cent of their inventory based on the volumes in the quarter preceding the previous quarter. The hedging may be undertaken through AD Category – I banks. The hedges may be undertaken using over-the-counter (OTC)/ exchange traded derivatives overseas with the tenor restricted to a maximum of one year forward.

It has been decided to extend additional subvention of 2 per cent (in addition to the 2 per cent already offered earlier) in pre shipment and post-shipment credit to the following sectors:

• Leather and Leather manufacturers 
• Marine products
• All categories of textiles under the existing scheme including RMG and carpets but excluding man-made fibre; and
• Handicrafts 

Banks will therefore now charge interest rates not exceeding BPLR minus 6.5 per cent on pre-shipment credit up to 180 days and post-shipment credit up to 90 days on the outstanding amount in respect of the above mentioned sectors. However, the total subvention will be subject to the condition that the interest rate, after subvention will not fall below 7 per cent which is the rate applicable to the agriculture sector under priority sector lending. The above dispensation is valid from November 1, 2007 to March 31, 2008. 

RBI has asked the finance ministry to explore the possibility of restricting ECBs through the automatic route at only $20 million as against the present cap of $500 million.

The Reserve Bank of India has given an in-principle nod to invest five billion dollars of foreign exchange reserve annually in infrastructure projects through two subsidiaries of India Infrastructure Finance Company Ltd. (IIFCL). The RBI Board has given in-principle approval in respect of the Special Purpose Vehicle (SPV) to be established to borrow funds from the RBI and lend to Indian companies implementing infrastructure projects in India, or to co-finance their ECBs for such projects solely for expenditure outside India,” 

The Government is likely to allow Private Equity (PE) funds and Venture Capitalists (VCs) to be part of the consortia that bid for infrastructure projects. At present, these entities can only participate indirectly in these projects by committing funds to one of the bidders. SEBI-registered VC funds and PE firms are barred from bidding for infrastructure projects, as they do not meet conventional qualifications like gross revenue, net worth or net cash accruals. Given that financing of the infrastructure sector is essential to sustain the growth story, the move to enable PE/VC funds to invest in these projects is in the right direction. The Centre is understood to have agreed in principle to the proposal and is examining the impact. This would encourage these investors to participate at the inception stage. 

In order to take a coordinated policy approach to effectively tap the full potential of the services sector, the government is considering setting up a separate nodal department on services under the ambit of the finance ministry. Another agency called National Commission for Services (NCS) may also come into existence. 

The Government is likely to put on hold its plan of placing an export obligation on units operating in SEZs. As per SEZ rules, units in SEZs have to be only net foreign exchange earners. This means that a unit’s exports should be more than its imports.

• The commerce department has argued that an export obligation should be imposed only if the SEZs were found to be selling mostly domestically. 
• The whole idea behind not imposing an export obligation was to give units the flexibility to settle down in business before starting exports.
• The commerce department has said that if in any year, it was found that exports from SEZs have dipped beyond a certain point; Govt. could consider imposing export obligation. 

Concerned over the high level of defaults in the project finance portfolio of banks, the Reserve Bank of India, has asked banks to ensure that funds for projects are released in such a way that the decided level of Debt-Equity Ratio for the project is maintained at all times. The Central Bank has suggested that banks could release funds sequentially so that they are not required to fund the equity portion of projects.

The Institute of Chartered Accountants of India has initiated peer review of Chartered Accountant Firms in a phased manner. The Institute appointed Peer Reviewers are undertaking a cold file review of selected CA firms, with a view to report on their documentation, compliance's, quality of procedures and adherence to mandatory accounting standards, auditing standards, statements and guidance notes issued by the Institute of Chartered Accountants of India. Securities and Exchange of India (SEBI) has recently made it mandatory that only the CA firms who have been reviewed by the peer review process of the Institute and have obtained a successful clean peer review certificate will be entitled to undertake the audit of listed companies. The Reserve Bank of India, Insurance Regulatory and Development Authority and other regulators may follow such decision for audits of banks and insurance companies. The Institute has also permitted CA firms to get themselves peer reviewed on a voluntary basis in those cases where their names are not selected for the peer view. The CA firms who are selected for the peer review have a number of apprehensions in their mind about the review process. In fact the objective of the peer review is to undertake a review of the Chartered Accountants’ working methodology, audit process and documentation by another Chartered Accountants in practice. Peer review is being undertaken with an objective of improving the quality of audit and assurance.  The Peer Reviewers have been provided with a Peer Review Manual, copies of which are also available for sale at the Institute. The Reviewers are also provided a detailed training by leading experts and senior Chartered Accountants from various parts of the country. The Peer Reviewers have been advised that their role is to review the audit process and not to review the audit opinion. The audit opinion formation is the sole prerogative of the auditor and the peer reviewer cannot question the judgment of the auditor. There is a Chinese wall between the peer review wing of the Institute and its disciplinary wing and no information obtained during the peer review process can be used for disciplining the members. This is a challenge on the one hand but a great opportunity on the other as this review will ensure general improvement of quality of audit and assurance engagement. This will further improve independence and integrity of the audit processes. The application of detailed standards on Auditing may be suitably modified in audit of smaller enterprises. The adherence to the basic principles, procedures and documentation in all kind of Audit and assurance engagements will however ensure more safety for the Auditor and will limit their liabilities significantly. The Audit risk can be significantly contained by adherence to ICAI standards. The respect for auditors in the mind of auditee, regulators, government, user of financial statements and the society will improve significantly. The small and mid size audit firms will also have better acceptability for larger and complex audit assignments arising out of better audit processes and improvement in quality of audit.

The Foreign Exchange Rate of Rupee viz a viz US Dollar has appreciated about 14% during last 12 months. Indian currency has appreciated against all major currencies of the world except in case of Euro. The US economy is facing sub-prime crises and may only rebound in 6 to 9 months. Fed interest rate cut of 0.75% by US in recent months will facilitate consolidation of US economy. The growth of Indian economy, increase in the flow of investment in real estate, stock market and infrastructure have led to a stronger rupee and larger foreign exchange reserve. The Indian rupee is expected to further strengthen to Rs. 35 to 1 US Dollar in next 12 months. Exporters, BPO companies, Information Technology companies are facing stiff competition and pressure of margin. The invoicing in Indian rupee, broad basing of exports, technological innovation, cost reduction and moving up the value chain are to be strategised. Indian exporters need to plan international corporate structure and set ups for better business opportunities, higher margins and tax planning. Imports are becoming cheaper and have an impact of reducing inflation and a negative pressure on balance of trade. Foreign Debt Servicing is becoming cheaper and easier. The Chartered Accountants, as treasury managers need to have a clear risk management policy and may partly cover the risk through forward and derivative products. Their professional acumen and expertise can bring revenue and cost saving. RBI is pushing for exchange traded hedging products for foreign exchange risk. The profession needs to gear up in knowledge and technology to meet the new challenges. The government need not feel nervous on higher inflow and utilize forex reserves for government debt restructuring, investment in growth and development plans with adequate cover for exchange fluctuation risk.

The fate of FDI in insurance and commodity broking would be decided soon. The Foreign Investment Promotion Board (FIPB) is seeking the views of financial services department and consumer affairs department to come out with a policy of FDI in these sub-segments of the financial sector. As of now, foreign investment in these two business do not figure in the list of financial services.

The Securities and Exchange Board of India (SEBI) has cleared the proposal for a separate stock market for listing Small and Medium Companies (SMEs). There is no proposal for revamp of the Over The Counter Exchange of India (OTCEI).

The Securities and Exchange Board of India (SEBI) has asked stock exchanges to compile a list of companies that are yet to comply with the revised Clause 40A of the listing agreement as soon as possible and upload the same on their websites. Clause 40A of the listing agreement requires all listed companies, other than some exempted ones, to ensure minimum level of public shareholding at 25% of the total number of issued shares for the purpose of continuous listing. In other words, promoter and promoter-group combined have to bring down their stake to 75% of the total equity.

The Forward Markets Commission (FMC) has favoured more autonomy for it, and mooted that banks be allowed to trade in the commodity markets. For this the Forward Contracts (Regulation) Act, which governs the commission, could be amended.

The Council of the Institute of Chartered Accountants of India, at its 273rd meeting held on October 10-12, 2007, approved the Accounting Standard (AS) 30, Financial Instruments: Recognition and Measurement and Accounting Standard (AS) 31, Financial Instruments: Presentation. These Accounting Standards will come into effect in respect of accounting periods commencing on or after 1-4-2009 and will be recommendatory in nature for a period of two years. As a consequence of issuance of AS 30, limited revisions to eight Accounting Standards, viz., AS 2, AS 11 (revised 2003), AS 21, AS 23, AS 26, AS 27, AS 28 and AS 29 have also been made. The approved Standards and the consequential limited revisions will be issued shortly. AS 30 establishes principles for recognition, derecognition and measurement of financial instruments. For the purpose of the Standard, financial instruments are classified into financial assets or financial liabilities at fair value through profit or loss, held-to-maturity investments, loans and receivables, available-for sale financial assets and other financial liability. AS 30 also establishes principles for hedge accounting. AS 31 primarily establishes principles for presenting financial instruments as liabilities or equity and related principles of interest, dividends, losses and gains. The principles in this Standard complement the principles established in AS 30. As 30 and AS 31 are based on the corresponding International Accounting Standards, viz., IAS 39, Financial Instruments: Recognition and Measurement and IAS 32, Financial Instruments: Presentation, respectively. There are no material differences between AS 30 and IAS 39, and AS 31 and IAS 32. Accounting Standard corresponding to IFRS 7, Financial Instruments: Disclosures, is under preparation and will also be issued in near future

It has been decided to allow the banks to issue the following types of preference shares in Indian Rupees :

• Tier I capital Perpetual Non-Cumulative Preference Shares (PNCPS)
• Upper Tier II capital
• Perpetual Cumulative Preference Shares (PCPS)
• Redeemable Non-Cumulative Preference Shares (RNCPS)
• Redeemable Cumulative Preference Shares (RCPS)

The Perpetual Non-Cumulative Preference Shares will be treated on par with equity, and hence, the coupon payable on these instruments will be treated as dividend (an appropriation of Profit & Loss Account). All other types of preference shares mentioned above will be treated as liabilities and the coupon payable thereon will be treated as interest (charged to Profit and Loss Account).
 

Banks should, while selling Non Performing Assets (NPAs), work out the net present value of the estimated cash flows associated with the realizable value of the available securities net of the cost realization. The sale price should generally not be lower than the net present value arrived at in the manner described above. Same principle should be used in compromise settlements. As the payment of the compromise amount may be in installments, the net present value of the settlement amount should be calculated and this amount should generally not be less than the net present value of the realizable value of securities.

The International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board under the auspices of the International Federation of Accountants (IFAC), approved two sets of new proposals. The fi rst exposure draft addresses concerns about the use and reliability of external confirmations as audit evidence. External confirmations are written responses to the auditor from a third party. Second exposure draft proposes stricter requirements when an auditor uses an expert to obtain audit evidence.

Commerce Ministry feels the Special Economic Zone (SEZ) Act already provided for tax exemption for services consumed either inside or outside an SEZ so long it was for an authorized operation within a zone.They said fi eld formations were only interpreting the Act wrongly, but the view has been refuted by the revenue department. The SEZ Act states that exemption from service tax would be provided on taxable services provided to a developer or unit to carry on the authorized operations in an SEZ. A fi nal resolution on the issue may take some time as both the ministries continue to slug it out on the interpretation of a provision in the law.

Article 27 of the Indo-USA Double Taxation Avoidance Convention (DTAC) provides for a Mutual Agreement Procedure (MAP) for avoidance of double taxation. To avoid hardship to tax payers, the competent authorities of India and the US had entered into a memorandum of understanding (MoU) regarding suspension of collection during the pendency of MAP in 2003. The collection of outstanding taxes in the case of a resident of the US, whose request under MAP is under consideration  of the competent authorities, was kept in abeyance, subject to furnishing a bank guarantee of an amount equal to the amount of tax under dispute and the interest accruing thereon according to the provisions of the Income Tax Act. It has been decided to extend the applicability of the MoU to Indian entities also during the pendency of the MAP. The MoU was hitherto applicable only to US entities.

Special Economic Zones (SEZs) industrial park scheme and some other schemes that provide for tax exemption have come under income tax scanner. Apprehending tax evasion, the I-T department has asked its field formations to scrutinize returns of the entities closely.

From now, money spent on the content of website will be exempt from tax. A division bench of the Mumbai Income Tax Appellate Tribunal (ITAT) passed this order on an appeal filed by Sedgwick Parekh Health Management. ITAT held that the expenditure was on services rendered by different professionals in running the website in a functional manner. These expenses have not been incurred for setting up the income earning apparatus of the company but for running and maintaining the income earning apparatus.

Several public sector banks have informed the Government that they would soon cut peak deposit rates to maintain their margins. Banks have recently slashed lending rates by 50-100 basis points (bps). There is massive liquidity; banks are realigning rates to market realities.

The Government has decided to allow Special Economic Zone (SEZ) units to import used plant or machinery without any quantitative restrictions, provided the machinery was not used by the assessee (unit owner) or previously used in India. SEZ units will also be allowed to use second-hand machinery and plant previously owned by the assessee or used in the country to the extent of 20% of the total value of machinery or plant used in the business. Earlier, SEZs were not allowed to use old machinery and plants at all. As per amendments in SEZ rules notifi ed recently, Rule 18(4)(g) prohibiting SEZ units to install previously used machinery has been deleted. The Finance Act 2007 amended Section 10AA of the Income Tax Act allowing SEZ units using up to 20% of used machinery for IT benefits.

In the mid-term annual review of the annual monetary policy, the Reserve Bank of India (RBI) would consider imposing a temporary ban (or even a permanent ban in case of persistent abusive practices) for engaging recovery agents on those banks where strictures have been passed or penalties have been imposed by a High Court or Supreme Court or against its directors or officers with regard to the abusive practices followed by their recovery agents.

The Reserve Bank of India (RBI) has slammed the brakes on banks cornering deposits through special schemes with lock-in periods. The fact that these banks give depositors no access to their own funds during the tenure, offer no liquidity against the deposits, or even allow premature withdrawals prompted the apex bank to order an immediate halt to such schemes. Banks have also been directed to report compliance forthwith.

The Institute of Chartered Accountants of India (ICAI) has stressed on strict compliance of Know Your Client (KYC) norms and Prevention Of Money Laundering (PML) regulations for Offshore Derivative Instruments (ODI). It has also urged SEBI to reconsider some of the proposals on participatory notes. According to ICAI, the proposal to limit non derivative participatory notes to 40% of the asset under custody of Foreign Institutional Investor (FII) in India, may not be appropriate. The institute is fearing that the move would require a large number of investors to get themselves directly registered with SEBI and create complications. This is because most of the investors may not have necessary infrastructure, time and energy to meet various regulatory requirements in India. However, it viewed that the investors should meet all necessary regulatory requirements in the host country. The Corporate and Allied Laws Committee (CALC) of the institute has submitted its recommendation on the SEBI’s paper wherein it said that it is not in favour of a complete ban on FIIs sub accounts which conform to KYC and PML guidelines. Also the appropriate undertaking from the investors and regular track of Financial Action Task Force should ensure that only clean money enters the system. ICAI has also offered its assistance to SEBI to draft KYC and PML guidelines.

Participatory notes (P-notes) are securities linked to equities used by investors who cannot trade directly in the Indian market. Securities and Exchange Board of India (SEBI) has suggested restricting their use to curb burgeoning capital flows into the country. Accordingly,

• FIIs and sub-accounts to wind up P-notes for investing in derivatives within 18 months.
• FIIs will not be allowed to issue P-notes in the spot market for more than 40% of their assets under custody.
• Those FIIs that have issued P-Notes less than 40% of their assets under custody, can issue additional instruments at the annual rate of 5% of their assets.
• The reference date for calculating such assets will be September 30.
• The registration procedure is being simplified; FII registration to be in perpetuity.
• Separate category of unregulated investors, such as pension funds and charitable trusts, to be allowed.
• Fresh look at FII regulations.

Indian economy is growing at an unprecedented pace. Foreign Direct Investment is coming in unabated, Indian Companies and businesses are doing extremely well and accordingly the tax collection of Government of India has significantly improved during last 3-4 years. Even during the current financial year fi rst 6 months collection of tax revenue have increased more than 40%. Even State like Bihar has witnessed 400% increases in central tax collection. The overall tax revenue collection of the government is more than Rs. 500,000 crore. The financial management of the government is however in limbo and a debt trap is evident by the fact that 99% of tax collection is spent to meet interest cost and debt repayment by the Government. The Government expenditure is being met by fresh borrowings or by trade defi cit. The Government net borrowing is growing by about 30% per annum. The position is becoming bad to worse. The NDA government led by Bhartiya Janata Party had enacted FRBM Act providing a parliamentary directive to the government to contain its expenditure. The UPA government led by Congress Party has already extended by 2 years the period of achieving nil fi scal defi cit and limiting current account defi cit. The XIth Plan Approach Paper released by Planning Commission is seeking a further extension of 2 years for implementing FRBM Act. CPM has recently advised the Government to withdraw FRBM and to remove all constraints on necessary and desirable revenue spending and also to continue fertilizer subsidy, power subsidy, water subsidy to the agricultural sector. It may be noted that Capital expenditure of the Government and specially the plan capital expenditure is not even 5% of the total budget. No signifiant investment has been made by the government in last 4 years in power sector, irrigation sector, roads and bridges, ports, dams, airports, telecom and other infrastructure sectors. The capital expenditure on hospitals, colleges, schools, training centers and other important areas of education is being fully ignored and is not even half percent of the plan expenditure. The education cess being collected by the government is also not being utilised properly. No major projects have been undertaken to address the issue of drought or flood and lack of irrigation facilities. The government is depending on private sector initiatives in every area. The Finance Minister is openly saying that the government has no fund for spending on plan capital expenditure needed in real sense to empower the nation. In fact the Central Government’s helplessness is evidence of a complete failure of visionary thinking and lack of basic understanding of financial management Principles and techniques. The government needs to undertake following steps on a most urgent basis:

• Allocate at least 40% of its tax collection to plan capital expenditure
• To contain the revenue expenditure of the government to a maximum of 60% of its tax collection. This revenue expenditure would include interest payment on the amount borrowed.
• There is an immense need to cut Government overheads by Zero based budgeting technique even if the various subsidies might have to continue for next 2 years to 4 years
• It is important to empower the poor and needy including agricultural sector, scheduled casts and tribes and landless laborers, unemployed youths and other people below poverty line and those belonging to backward classes. The real empowerment will happen by creating infrastructures, jobs and growth, which will mainly come from capital expenditure.
• All the Government Schemes, for the purpose of revenue expenditure has to be self-supporting except in few exceptional cases.
• Massive facilities for education and training have to be developed.
• Large expenditure are to be incurred on power sector, roads, bridges, ports and airports by the government. The government has to take a challenge to run these institutions efficiently and economically by incurring large capital expenditure and self supporting revenue model on the lines of businesses with appropriate cross subsidisation. 

The Chartered Accountants’ Profession is witnessing unprecedented growth in opportunities. The economy is growing at more than 8% per annum, foreign direct investment is coming in unabated, multinational companies are setting up businesses in India, Indian companies are growing at a pace greater than ever before, businesses are becoming larger and bigger. The capital market index, Sen sex has even touched 20000-mark, growing Indian capital market capitalization by about 4 times in a period of little more than a year. The growth in real estate sector is consolidating for another leap forward. In the above backdrop, the demand for Chartered Accountants and their services have grown multi fold in last two years. In employment Freshly qualified chartered accountants are getting an average salary of more than Rs.6 lakhs, CAs with 5 years and more experience are being offered from Rs.12 lakhs to Rs. 18 lakhs per annum. CAs with more than 10 years experience are being offered from Rs. 18 lakhs to Rs. 30 lakh per annum. Some pragmatic CA are being offered packages in the range of Rs.100 Lakh to Rs.500 Lakhs per annum including ESOP, SWEAT Equity and ownership participation. This trend has attracted practicing chartered accountants also and about 20% chartered accountants, who were earlier in practice, have shifted from practice to employment About 90% of chartered accountants qualified in last two years have joined employment.

Opportunities for CAs in practice:

The opportunities for chartered accountants in practice are also growing at a larger pace, of late. The number of chartered accountants in practice have reduced significantly in last 3 years, whereas the demand has gone up by 3-4 times. The demand for various kinds of services in auditing and assurance, corporate laws, compliance, corporate finance, business advisory, mergers and acquisitions, ERP implementation, system design and development and large number of other areas is increasing leaps and bounds. A large number of multinational companies have started appointing Indian chartered accountant firms for fairly complex professional assignments. A large number of schartered accountants are getting involved themselves into outsourcing activities taking up accounting jobs for overseas clients. The profession is shaping up and re-adjusting itself to the changing business realities and still a number of small and proprietorship firms are yet to fully take advantage of increased demand. Most of the large practicing chartered accountant firms have revised their fee scales upward by about 2 times to 3 times. The Middle sized CA fi rms have taken a policy decision to increase their fee scales by about 25% to 50% per annum. Even smaller CA firms have already started refusing work for smaller clients or those who are not ready to increase fee scales corresponding to increase in cost and increase in demand. This benefit of enhanced opportunities has not reached to those who have not been able to strengthen their technical and negotiating skills or to those who are apprehending that they may loose the clients. The professionals will need counseling.It is not only the increased demand, which deserve increase in fee. The costs of delivering services have gone up sharply. It may be noted that the cost of delivering services has already increased by more than 100% in last two years arising out of increased cost of professional staff, rent, electricity and other inputs. Middle and small practicing firms are not getting fresh qualified chartered accountants for employment in their firms resulting in devoting more time and energy by the senior partners.
It is also important for all practicing chartered accountants to re position themselves to address changed business environment. It is recommended:

• To undertake an ABC analysis of the professional assignments currently being undertaken by their firms
• To prepare a business plan and a realistic estimate of growth in next 3 to 5 years.
• To calculate the cost of delivering services including cost of professional time being spent on various professional services. * To carefully fi x the pricing of various services after calculating the professional input and cost, including opportunity cost
• To give priority of time allocation of at least 50% of the professional time to high value added professional services where margins are adequate
• To allocate at least 20% of the professional time for professional upgrade, networking, seminars and conferences in India and even outside India and similar activities.
• To allocate only 10-15% of the professional time to low value added services including services to NGO, banks and other low paying clients.
• The approach of the profession towards professional services has to undergo a major shift and it is necessary that professional fees are increased by about 2 times to 3 times, in all those cases where old fee levels are continuing.
• The earlier approach to work at below cost or compromising on quality or to some how or the other meet to cost or to make small margins have to be replaced by a professional approach of delivering value and charging adequately. No professional service or advise is to be rendered free except in case of charitable organizations, social causes, nation building and while rendering services to the poor and needy for their up liftment and empowering them. 
• The most important is to keep fully a brest with latest development in accounting profession all around the world by aggressively taking CPEs and Developing an effective team of nonCA staff by giving them proper training, education and on-site experience. Let us realize, it is time to awake and act.

The Government is planning to tighten foreign investment reporting norms to push corporates to issue shares to foreign investors within a fixed period after receiving their funds. With no time frame stipulated, corporates often cancel an investment deal and return the money after using it for many months. In effect, the investments are actually used as short term debts, which the Reserve Bank of India wants to discourage. The move is aimed at addressing RBI’s concerns about misuse of foreign investment rules. It wants to plug loopholes so that companies receiving foreign money issue shares within a stipulated time-frame.

The primary markets advisory committee of Securities and Exchange Board of India (SEBI), which discussed the proposal at its last meeting, is opposed to a mandatory quota for women on company boards as part of the listing agreement.

The Free Trade Agreement (FTA) component of the India-European Union comprehensive economic cooperation agreement (CECA) is likely to exclude nearly 150 farm products to shield Indian farmers.

The much awaited new mortality tables for the life insurance market, which have been pending for more than a year now, are likely to come out in the next six months. These tables are almost a decade old and the industry, as a whole, has been asking for revised mortality tables to give an accurate picture of life graph on today’s consumers.

Insurance companies will have more infrastructure firms in their equity investment portfolio soon. The Insurance Regulatory and Development Authority has agreed to allow insurance companies to invest in equities of non-dividend-paying infrastructure companies. Relaxation will enable investment in such companies on the basis of project risk assessment and developers’ risk-rating.

The Insurance Regulatory and Development Authority (IRDA) is set to allow insurance companies to invest in a few more financial instruments, including derivatives. The proposed move will enhance returns for policy holders. Derivatives such as options and futures are financial instruments whose value is based on another security.

MCX subsidiary National Spot Exchange for agricultural Produce (NSEAP) is set to launch the country’s first spot exchange on an electronic platform in Gujarat during September, which would revolutionize spot market commodity trading and offer better prices to farmers.

The National Commodity and Derivatives Exchange (NCDEX) is shifting focus to politically less sensitive commodities such as metals in a bid to steer clear of constant Government intervention in farm commodities.

Public sector blue-chip companies enjoying navratna and miniratna status can now park up to 30 per cent of their surplus funds in equity mutual funds. However, the investments would be allowed only in public sector mutual funds.

In a move to further deregulate the Indian equity derivatives market, the Reserve Bank of India (RBI) has broadened the number of instruments for maintenance of collateral by foreign institutional investors undertaking derivatives transactions. RBI has decided in consultation with the Government of India and Securities and Exchange Board of India (SEBI) to permit SEBI approved clearing corporations of stock exchanges and their clearing members to open and maintain demat accounts with foreign depositories and to acquire, hold, pledge and transfer the foreign sovereign securities, offered as collateral by FIIs.

The Council of The Institute of Chartered Accountants of India has decided to withdraw the Statement on Payments to Auditors for Other Services.The Council has noted that Part II of Schedule VI to the Companies Act, 1956, exhaustively covers the disclosure requirements for payments to auditor in other capacities. 

The Council of The Institute of Chartered Accountants of India has decided to withdraw the Statement on Qualifications in Auditor’s Report except paragraphs 2.1 to 2.30, dealing with report under section 227 (1A) of the Companies Act, 1956. The Council has further decided to keep the paragraphs 2.1 to 2.30 of the existing Statement and rename the Statement as “Statement on Reporting under section 227 (1A) of the Companies Act, 1956.

Gujarat may soon follow Maharashtra’s model of auditing in co-operatives sector. The Institute of Chartered Accountants of India will soon propose the state government to impanel only those CA’s who have undertaken a special course on auditing of accounts of co-operatives. WIRC of ICAI has trained 4000 CAs for Audit of Maharashtra Cooperatives through a specially designed training course. 

Institute of Chartered Accountants of India (ICAI) council decided to converge the Indian standards with international financial reporting standards (IFRS) issued by the International Accounting Standards Board from the accounting period starting April 1, 2011. The IFRS will become mandatory with effect from April 1, 2011 and will be optional for earlier adoption by corporates w.e.f. 1st April, 2008. Significant changes in accounting practices and techniques, including for revaluation of fixed assets, can be expected with the ICAI giving a go ahead to converge the Indian accounting standards with international standards from April, 2011.

The Supreme Court (SC) has refused to stay Accounting Standard (AS) 22 though it admitted a plea challenging this new norm issued by the Institute of Chartered Accountants of India on deferred tax liability of listed companies. A bench headed by Justice S.H. Kapadia observed that the norms would continue to be in operation after Solicitor General G.E. Vahanavati and CA.N.K. Poddar, Senior Advocate opposed the petitions saying AS-22 has come into effect in 2001.

To enhance the quality and consistency of audits, the International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board under the auspices of the International Federation of Accountants (IFAC), is continuing to advance its project to clarify its international standards. The IAASB has now approved five final International Standards on Auditing (ISAs) drafted in accordance with the new conventions and, including the eight just released, 23 exposure drafts of ISAs. The IAASB expects to issue a further seven exposure drafts this year, and to complete all 35 ISAs as final standards by the end of 2008. India: The council of the Institute of Chartered Accountants of India has in principle decided to also redraft all its Audit and Assurance Standards (AASs) as Standards on Auditing (SAs) and also to follow same style and numbering as of ISAs 

The Delhi Government has decided to impose value added tax (VAT) on buses carrying office goers, students and others on contract basis, a move that is likely to increase fare in all such public carriers. There is a legal issue involved here as the services are already subject to service tax. How VAT can be levied under “Right to use goods” category?

The revenue department has agreed to increase the abatement level for levy of service tax purposes from the existing 60 to 75 per cent. The abatement increase is not only for inbound packages but also for domestic package. The increase in abatement rate would be notified shortly.

Life insurance companies are set to be spared of paying service tax on fund management fees. This is a good news for policy holders investing in unit-linked insurance plans (Ulip) as they will not have to take a hit on their returns. The Central Board for Excise & Customs (CBEC) has accepted IRDAs view that fund management fees should not attract service tax because managing a policy holder’s money is a part of an insurers business.

State Finance Ministries have come to a consensus on the list of 44 new services of intra-State nature on which service tax could be levied by the Centre and passed on to them as part of the compensation package for central sales tax (CST) phaseout.

Retailers, real estate developers and multiplex owners among others have moved the Bombay High Court challenging the levy of service tax on rental income from commercial properties.

Nearly three months after the commerce ministry announced the measure while unveiling the annual supplement to the Foreign Trade Policy, the finance ministry is yet to finalize the terms for exemption and remission of service tax on export of merchandise goods.

Central Board of Excise and Customs has made the increased rates of drawback effective retrospectively from 1.4.2007. However, in a few cases such as primary steel, dyes and chemicals, the drawback rates have been reduced. The reduced rates will take effect prospectively from 18.7.2007, i.e. the date of coming into force of the notification which is made avaible at website www.cbec.gov.in 

E-Payment of direct taxes would be mandatory for corporate taxpayers and taxpayers who come under the purview of Section 44AB with effect from 1 January 2008.

The eligible loan limit for micro and small enterprises (MSEs) under the credit guarantee scheme, has been raised from Rs. 25 lakh to Rs. 50 lakh. Significantly, all MSEs operated and / or owned by women will get guarantee covers up to 80% of their credit off take from banks and financial institutions. The higher guarantee limit has also been extended to those micro enterprises, which will take loans up to limit of Rs. 5 lakh. Barring these two listed categories, over MSEs will get the guarantee coverage under the scheme up to 75 % of their borrowing. However, this facility would be enjoyed by those servicing units, which are related to the industrial activities. But not by those which are involved in trading and other non manufacturing activities

The eligible loan limit for micro and small enterprises (MSEs) under the credit guarantee scheme, has been raised from Rs. 25 lakh to Rs. 50 lakh. Significantly, all MSEs operated and / or owned by women will get guarantee covers up to 80% of their credit off take from banks and financial institutions. The higher guarantee limit has also been extended to those micro enterprises, which will take loans up to limit of Rs. 5 lakh. Barring these two listed categories, over MSEs will get the guarantee coverage under the scheme up to 75 % of their borrowing. However, this facility would be enjoyed by those servicing units, which are related to the industrial activities. But not by those which are involved in trading and other non manufacturing activities

PNs are derivative instruments whose underlying securities are Indian stocks and are issued by FIIs to overseas investors that want to invest in Indian stocks but are not allowed to do so directly but only through FIIs. PNs also give investors the benefit of anonymity, giving rise to concerns about whether Indian money itself is coming back through the PN route. The sources of such funds have been an issue with Indian regulators.

The Securities and Exchange Board of India (SEBI) is reviewing the registration norms for foreign institutional investors in a move to encourage direct entry by hedge funds. Hedge funds still prefer investments through the participatory note (PN) route because of the high transaction costs after registration as an FII.

Insurance Regulatory & Development Authority, plans to introduce a new benchmark for insurance companies’ valuations. The new measures will help in arriving at more realistic estimates based on disclosures. Realistic valuations are crucial to the industry which could become a hot-bed for mergers and acquisitions (M&As) if and when there is an increase in the foreign direct investment limit. A sub-committee has been set up by IRDA to suggest ways to value these companies. The Embedded Value (EV) method, which is an indicator of the value of the existing business in the books of a company, is one of the measures suggested by the committee. At present, the New Business Achieved Profit (NBAP) is used for valuation purposes. In the absence of a standard valuation method, the industry feels that some of the valuations may not be justified. While EV is an indicator of the value of the business in terms of policies already written, the NBAP multiplier is the value of the business that will be written in the future. NBAP is arrived at after various assumptions about the future, but it may not give pointers to the quality of the portfolio of the company.

National Bulk Handling Corporation (NBHC) will work as a collateral manager with IDBI Bank and State Bank of Patiala for warehouse receipt loans The banks have entered into an agreement to provide credit to farmers, corporates and processors against NBHC warehouse receipts. The stock pledged with the banks will be kept in warehouses owned by NBHC which will guarantee quality and quantity of the commodity

As per Reserve Bank of India (RBI) banks can now negotiate a Letter of Credit (LC) where the negotiation of bills drawn under LC is restricted to a particular bank, and the beneficiary of the LC is not a constituent of that bank.The LC can be negotiated subject to the condition that the proceeds will be remitted to the regular banker of the beneficiary.

The Reserve Bank of India (RBI) is exploring a dedicated currency futures exchange, after taking an in-principal decision to launch rupee-denominated futures. RBI has also decided to revive interest rate futures which have failed to take off after being introduced in June 2003.

As per the existing guidelines, banks charge interest rate not exceeding BPLR minus 2.5% on rupee pre-shipment credit up to 180 days and rupee post shipment credit up to 90 days. Banks will now charge interest rate not exceeding BPLR minus 4.5% on pre-shipment credit up to 180 days and post shipment credit up to 90 days on the outstanding amount for the period April 1, 2007 to December 31, 2007 to the specified export sectors. The Government has decided to provide interest subvention of 2 percentage points p.a. to all scheduled commercial banks.

According to a Reserve Bank of India circular banks should purchase/discount/negotiate bills under Letter of Credit (LC) only in respect of genuine commercial and trade transactions of their borrower constituents who have been sanctioned regular credit facilities by the banks. Banks should not, therefore, extend fund-based credit facilities (including bills financing) to a non-constituent borrower or a non-constituent member of a consortium / multiple banking arrangement.

The Reserve Bank of India has decided to increase the Cash Reserve Ratio (CRR) of Banks by 50 basis points to 7 percent with effect from the fortnight beginning 4.8.2007.

The recent episode of a sting operation by a leading TV channel in relation to CPT Entrance Examination of the Institute of Chartered Accountants of India has raised a serious concern among the Members of the Institute as well as the society. The Institute immediately cancelled the examination and has decided to re-conduct the same on 25th August 2007. The Institute has also constituted a High Power Committee, headed by a Government Nominee to very closely inquire about the subject matter and also to review the weakness in the system and control so that such events do not happen again. It is worth noting that no other CA Examination had been impacted by paper leakage earlier. The lure and lust of money converted into greed for CPT Entrance Examination, in view of its nature of an objective type examination.
The CA examinations are known for their highest standards, tough control and intense preparation requirement to ensure expert level of knowledge among Chartered Accountants. The passing percentage has been ranging from 7%-9% in Final to a range of 15-20% at intermediate level and there is no reason to suspect that there has been any case of paper leakage in the past. It is highly appreciated that the full Council of the Institute of Chartered Accountants of India is deeply concerned about the current paper leakage of the entrance examination. The Council may consider –

• To closely review the current examination systems and procedures and to beef them up with proper internal control mechanism.
• Expert Advisers on systems, securities and control can be retained to advise the Council.
• CPT Entrance Examination may be immediately converted from objective type to a tough and high standard subjective type examination, to enable the Institute to ensure that entry into CA course is very tough and thereafter passing intermediate / final examination, for such high quality students should be easier.
• The CPT paper was leaked from the examination center where paper was sent, just days before the examination. There are more than 200 centers all across India and it may be important to ensure a “three-key control” wherein the papers are kept in sealed boxes, sent to the examination center under high security and are opened few minutes before the examination commences in the presence of ICAI representative, the examination centers in charge and a Committee of volunteer Chartered Accountants.
• To further upgrade the quality of all the CA examination, substantially so as to ensure that only persons with very deep academic as well as practical knowledge are only able to pass the examination. The Council can consider introducing practical multi-disciplinary case studies as a part of the examination.
• The coaching institutes are registered, monitored and disciplined. No coaching is permitted within 9.30 A M and 5.30 P M. ICAI consent to take coaching may be made mandatory. ICAI is also considering providing mandatory coaching by ICAI itself.
• The paper setters, examiners, head examiners and all other connected with the examination system should be subject to rotation periodically and also should be subjected to very tough screening and on going surveillance, to ensure complete sanctity of the system.

Those who planned to leak the papers of CPT actually forgot that CPT paper leakage may give them an entry into a course which is very tough at all level and the very basis of the Course is Excellence, independence and integrity. When there is no integrity, they can never pass CA and we will never allow them to pass CA. We all are committed to take a very tough and stern action against those who are responsible for the current paper leakage. The police have already arrested one of the culprits and others are in the process. A detailed investigation by the police and / or CBI will completely uproot this menace.  

The Government is planning to further liberalise the Foreign direct Investment (FDI) regime by exempting several sectors from the mandatory requirements under Press Note 1 (PN 1). Advertising, hospitality, franchisee operations and several other services could be kept out of the purview of PN 1, which bars multinationals in existing joint ventures (JV) from setting up another venture in a similar line of business without a non objection from the Indian JV partner. The move is expected to remove a major irritant in sectors such as advertising, hotel, agro processing and franchising. The department of industrial policy and promotion has circulated a note on this as a part of an overall review of FDI regulations. At present, mining and IT are exempted from PN 1.

The Ministry of Finance (MoF) had introduced revised guidelines on issue of Prefrence Shares vide a press release dated April 30, 2007 pursuant to which foreign investment in the form of fully convertible preference shares would be treated as part of share capital, while other types of preference shares, optionally convertible preference shares, shall be required to conform to ECB guidelines/ECB caps. The MoF has now issued another press release whereby an exemption could be available from the purview of the revised guidelines to those institutions/corporates which have taken “verifiable and effective steps” prior to April 30, 2007. ‘Verifiable steps” would be actions that have footprints in public domain, and hence, verifiable with reference to these foot prints. “Effective steps” would be actions that go beyond simple intention to act and should be such that they bind the parties conclusively. Parties claiming benefit under the above exemption are required to complete the process of issuing the shares and receipt of money in lieu of such shares by 31.03.2007. Now, RBI has barred companies from raising funds overseas through issue of optionally and partially convertible bonds under foreign direct investment (FDI) regulations. Companies will now be allowed to only sell bonds that compulsorily convert into equity within a specified time frame. The clarification comes after the RBI found that Indian companies were raising funds overseas by selling hybrid instruments, which were essentially debt. Routing of debt flows through the FDI route circumvents the framework in place for regulating debt flows into the country, whether through overseas foreign currency borrowings or through foreign investment in rupee denominated debt. The bank, however, allowed all existing investments in instruments, which are not fully convertible into equity to continue till maturity.

In view of the practical difficulties being faced by the Mutual Funds in uploading the Net Asset Value (NAV) of Fund of Fund Schemes on AMFI’s website and their own website it has been decided that the time limit for uploading of NAV for fund of fund Schemes shall be extended to 10:00 am the following business day. 

SEBI has approved the consent order scheme. The scheme provides for settlement of cases of violations by paying a penalty. The scheme will result in swift solutions to many cases of violations that have piled up.

The Securities and Exchange Board of India (SEBI) vide circular No. MRD/DoP/ Cir- 05/2007 dated April 27, 2007 has made Permanent Account Number (PAN) the sole Identification Number (ID No.) for all participants in the securities market, irrespective of the amount of transaction. In light of the above, it has been decided to discontinue with the requirement of Unique Identification Number (UIN) under the SEBI (Central Database of market Participants Regulations), 2005 (MAPIN regulations)/circulars.

The Securities and Exchange Board of India (SEBI) has cleared the delisting guidelines with some modifications in its draft. The new guidelines will provide fair opportunities to companies opting for a delisting option even as they take care of investor interests.

The Securities and Exchange Board of India has decided to frame regulations for investment advisors. The registration of advisors and the implementation of the norms will be the responsibility of a Self-Regulatory Organisation (SRO), which is yet to be formed. 

The Securities and Exchange Board of India (SEBI) has decided to set up an Investor Protection Fund (IPF).The IPF will be started with an initial contribution of Rs. 10 crore by SEBI. SEBI plans starting a nation-wide investors’ education campaign. The Board decided not to wait for an amendment to the Securities Contracts Regulation Act (SCRA) for the IPF.

The Securities and Exchange Board of India (SEBI) has extended the deadline for the mandatory Permanent Account Number (PAN) requirement for all new investments in Mutual Funds (MFs) by six months up to 31st December 2007. SEBI has insisted that investors making new investments in MFs should produce proof that they have applied for PANs. SEBI, has however, exempted investors participating in micro-pension schemes from the PAN requirement.

The Ministry of Corporate Affairs is proposing a penalty for mega corporations failing to inform the competition regulator about their consolidated plans may have to pay hefty price. The penalty would be equal to 1% of the turnover or assets of the combined entity, whichever is higher. Companies, however, would get more time to inform the Competition Commission of India of their board’s decision regarding merger or an acquisition that has been signed. As per the Competition Amendment Bill, 2007, corporate would get 30 days for this, compared to seven days prescribed in the existing law. The ministry also wants to bring about certainty on how much time Commission could take to clear deal. This would build confidence among corporate entities to go ahead with Merger & Acquisitions.

Companies Act, 1956 – Section 394 – Merger of NBFC with other company – Regional Director raised three objections relating to procedural/technical formalities and compliance's including increase in the authorised share capital of the transferee company and modification of the main objects of the transferee company to include the business of the transferor company– Whether objections are tenable – Held, No.

The Delhi Bench of CESTAT in the case of Gujarat Ambuja Cements Ltd. V. Commissioner of Central Excise has held that service tax paid on transportation of goods beyond the place of removal is not an input service. In the present case, the appellant company was in the business of manufacture of cement. It claimed cenvat credit of service tax paid on the transportation charges from the place of removal till the place of customer, which did not find favour with the Tribunal. CESTAT held that the post sale transport of manufactured goods is not an input for the manufacturer/consignor. Service used in relation to the clearance from the place of removal and service used for outward transportation are to be treated as input service.

The Central Board of Excise & Customs (CBEC) has issued two comprehensive and consolidated draft circulars;

• dealing with the procedural issues and 
• dealing with the scope of the taxable services.

The draft circular on procedural issues aims to consolidate the service tax procedural issues including those relating to availment and utilization of CENVAT credit in so far as they relate to service tax. This circular supersedes all previous circulars/ clarifications/instructions issued by on these subjects. It is however, clarified by CBEC that this circular intends only to clarify the scope of the Act and the rules and therefore in the event of any inadvertent inconsistency or contradiction between this circular and the provisions of the Act or the rules, the latter would prevail.
The draft circular on technical issues intends to cover technical issues relating to scope and classification of taxable services, levy of service tax and valuation of taxable services. This circular supersedes all circulars, clarifications and communications issued from time to time by the CBEC, DG (Service Tax) and various field formations on all technical issues including scope and classification of taxable services, valuation of taxable services, export of services, services received from outside India, scope of exemptions and all other matters on levy of service tax. With the issue of this circular, all the clarifications issued on technical issues relating to service tax stand withdrawn. The above two draft circulars were hosted on the website of CBEC for comments to reach it latest by 29th June 2007, now extended by 15 days.
 

Four alumni of the Indian School of Business have developed Tax yantra. com, a portal that helps people file their Income-Tax (I-T) returns.The portal enables people to file IT returns from anywhere in the world, including people residing in the US and UK. A registered user who wants to file returns all by himself has to pay Rs. 100 as fee and those who prefer the portal to handle the filing of returns would need to pay Rs. 250/-

The Finance Ministry has said it does tap telephones in exceptional cases to unearth tax evasion but denied eavesdropping on routine corporate calls.Phone interception is done only in very exceptional and the rarest of cases after obtaining due authorization from the appropriate authority. It also said telephone interception was not being used for routinely tapping corporate conversations or keeping a tab on top bracket taxpayers. The statement was issued following certain media reports, which said the investigation wing of Income Tax (IT) Department was tapping corporate conversations over the past some time.

Income tax Act, 1961 – Section 145 – Valuation of stock – Assessee changed the basis of valuing closing stock – Reduction of profits – Assessing officer made additions – Tribunal deleted the additions- High Court upheld the deletion – Whether correct – Held, No.

The Central Board of Direct Taxes (CBDT) has directed tax officials to assess liability for those transacting in shares on the basis of principles laid down by the Authority of Advance Rulings (AAR). These principles distinguish between shares held as stock-in-trade (trading assets) and those held as investments. The circular implies that tax assessing officers will henceforth have to look into the holding pattern of the securities bought and sold, the sale-purchase ratio, the time involved, the funding sources and the overall trade volume when determining the tax liability involved among others. The CBDT has also said tax payers can have two portfolios – an investment one, comprising securities treated as capital assets, and a trading one, comprising stock-in trade, treated as trading assets.

The Centre has extended the deadline for payment of the first installment of Fringe Benefit Tax on Employee Stock Option schemes (ESOPs) by three months to 15th September 2007.

The Government has granted formal approval to 36 Special Economic Zones (SEZs) spread over 2,005 hectares. Out of these 36 zones, 21 are IT/ITES and electronic hardware SEZs, 5 are for biotechnology and related activities, 2 each for pharma and food processing, one each for aviation, R&D, light engineering, gems and jewellery, textile and apparel, and light engineering. The SEZ Board of Approval, also granted in-principle approval to 9 zones out of the 52 that were taken up for discussion.

In a move that will allow Indian firms to raise money in the Japanese market, the finance ministry has not raised any objections against allowing Indian companies to raise funds through Japanese Depository Receipts (JDR). A JDR represents ownership in shares of a foreign company trading on the Japanese trading markets. Indian companies would list their shares in the Japanese market and raise funds through Japanese Depository Receipts to finance projects.

The Reserve Bank of India (RBI) has raised concerns over the high level of defaults in the project finance portfolio of banks. The banks usually follow a system where the borrower has to bring in the margin fund upfront after which the bank disburses the line of credit. A promoter has to shell out a margin of around 15 to 50 per cent of the project cost. The promoter may be required to bring in only a portion of this upfront and thereafter, on a pro-rata basis, with each time the bank releases funds the promoter brings in his portion. In case, the borrower is unable to bring in his portion, the banks may ask the borrower to bring in another promoter or acquire equity in the project. However, as the investment is locked up, the banks are forced to release funds to keep the project going without insisting on the borrower bringing in the margin upfront for select projects.

The Reserve bank of New Zealand (NZ) has unexpectedly raised its benchmark interest rate to a record 8 per cent, lifting the Kiwi dollar to a 22-year high.

The Reserve Bank of India (RBI) has already set up an internal working group for examining issues related to the launch of currency futures in India.

To provide greater flexibility to residents with overseas direct investments (in equity and loan), it has been decided to allow cancellation of forward/ option contracts entered into with Authorised Dealer Category – I banks to hedge the exchange risk arising out of such investments. Further, 50 per cent of the cancelled contracts may be allowed to be re booked. All other conditions and guidelines contained in A. P. (DIR Series) Circular No. 47 dated December 12, 2003 remain unchanged. 

Presently, Mutual Funds (MFs), registered with Securities and Exchange Board of India (SEBI), are permitted to invest in ADRs/GDRs of Indian companies, rated debt instruments and also in the equity of overseas companies listed on a recognized stock exchange overseas. To enable the MFs to tap a larger investible stock overseas, it has been decided that they may also invest in (i) Overseas MFs that make nominal investments (say to the extent of 10% of net asset value) in unlisted overseas securities; (ii) Overseas exchange traded funds that invest in securities; and (iii) ADRs/GDRs of foreign companies.

The CA education structure has recently been significantly modified by permitting tenth Grade pass students to join the course and to appear for Common Entrance Examination (CPT) immediately after 12th and to join article trainee of 3.1/2 years thereafter. This has reduced the overall time to complete the chartered accountancy course by more than 2 years and now it would be possible for the new entrants to qualify as a Chartered Accountant within 4 years from the date of their passing their 12th examination.
The inflow of new entrants in chartered accountancy has increased very significantly. As compared to about 35,000 students joining CA course every year, now, within last 6 months more than 1,25,000 students have joined the CA course. The following issues have emerged and are to be strategically addressed by the practicing chartered accountants, members of the profession, students and the Institute of Chartered Accountants of India:

• There is a wide gap between expectations of the Principal (Practicing Chartered Accountant) imparting practical training and the delivery capability of CPT students. Even seniority with which CPT students who undertake practical training is to be increased significantly. 
• A large number of CA firms have so far decided not to entertain undergraduate trainees. Their apprehensions include no prior knowledge of basic audit & taxation principles, non seriousness of CPT students, diversion of attention of CPT students to graduation as well as PCC (CA intermediate) examination as well as devotion of substantial time towards coaching classes.
• The ability of adequate seats for training article students is currently an issue as most of the mid-size firms have exhausted their entire entitlement already. A proposal is under consideration of the Institute to substantially increase the training entitlement to Chartered Accountants. 
• Apprehension of undergoing dummy training by the students on a large scale, arising out of attraction towards full time graduation course in colleges, has to be addressed effectively
• The intensive coaching by private coaching institutions has become prevalent at school level as well as in various entrance examinations. A similar trend has developed in respect of Chartered Accountancy Course wherein for the CPT (entrance examination), PCC (intermediate) as well as for final examination, the students are opting to undertake private coaching intensively. A large number of these coaching institutions, across the country, are providing such coaching even during office hours i.e. the period during which the students are supposed to undergo practical training. There is a direct conflict created between coaching and training. The backbone of our profession has been practical training of the CA students and the practical exposure during such training pave the way for successful career for Chartered Accountants
• A number of students are opting to give full preference to examination oriented coaching without giving adequate emphasis on their overall development as Business Managers and as world class professionals. At the same time the practical training is being ignored. It is important for the profession of Chartered Accountants to ensure that such wrong direction is not taken by the students community as a whole and necessary checks and balance has to be developed in the system so that this menace can be checked. 

The incoming new generation of CA students is the future of the profession and all of us have to provide them all necessary support psychologically, technically as well as emotionally including a sincere attempt to develop professional ethics,  capability, respect for seniors, devotion to the cause of the profession and development of the economy . It may also be important to develop a keen aggression in the students to learn and deliver during their education and training so that it provide necessary backbone to the practicing CA profession and the requirement. It is possible to address these issues on the basis of a strategic approach and active participation of all concerned. The Institute of Chartered Accountants of India need to consider -

• To impart 3 weeks to 6 weeks special class room session to CPT past students to train them and equip them mentally, psychologically as well as academically to undertake practical training with practicing chartered accountant firms.
• To address the issue of dummy training by providing a mechanism of detailed reporting requirement by article students in respect of actual practical training undertaken through online mechanism on a periodical basis, to be countersigned by the Principal concerned. The students joining CA course must be required to give a periodic affidavit and undertaking that they are diligently carrying out their training effectively. In case of false declaration, a clear cut provision of cancellation of the training period may be prescribed.
• The CPT examination should be strengthened significantly to ensure that the admission in our course is more tough so that, of the students who are actually admitted, a significant majority i.e. 80% - 90% of them should be able to qualify the intermediate examination (PCC) as well as the final examination of the Institute.
• The mandatory coaching for CA intermediate as well as for CA final should be provided by the Institute through its Regional Councils and Branches besides accredited Institutions. A part of this mandatory coaching should be on residential basis to enable development of professional trades and personalities of internationally best level for our profession to march ahead in competition as compared to the best Management Schools in the country and the global market places.
• Private coaching institutions are to be monitored to ensure that they do not impart coaching to students of PCC (intermediate) as well as CA final during the working hours of their training. It may be appropriate to accredit (register) these private coaching institutions so as to enable the Institute to monitor their quality, infrastructure, fee scales as well as delivery timings to the benefit of the profession of Chartered Accountants. These coaching institutions are providing significant contribution currently to the CA students and the Institute’s support will further sharpen their delivery capabilities and will ultimately improve the performance of the CA students. 

Delhi Master Plan – A dilemma of Chartered Accountants
The Master Plan of Delhi 2021 has permitted professionals to operate from residential areas in Delhi subject to a maximum 50% area of dwelling unit / plot being occupied for residential purpose. The occupants are required to pay only a conversion charge (which is nominal) and a substantial one-time charge for parking charges ranging from Rs. 1.5 lakh to Rs. 4.5 lakh depending on the area of their occupation. The last date for this payment was 30th June 2007. The NIRC of the Institute of Chartered Accountants of India, at the behest of the Regional Council Members and Central Council Members filed a Writ Petition before the Hon’ble Delhi High Court challenging this levy. The Hon’ble Delhi High Court has granted a stay till 30th July 2007.

The major issues to be decided in this regard include:

• A clear-cut declaration is required that these charges are not leviable for those who are occupants of the premises for a period before 1962 for commercial / professional purpose.
• The Government is levying hefty parking charges without providing any proper infrastructure for parking. Even a concrete plan is not being promised in this direction.
• Why should there be a last date for payment of such charges? Professional will keep on establishing their profession hereafter also, how can this benefit be denied to those who establish themselves after 30th June, 2007?
• In case a professional pay charges in a locality (A) and later on he shift to locality (B) whether these charges will be again payable.
• In case some other professionals occupy the vacated premises in locality (A) as above, will he be entitled to the benefit of parking charges earlier paid for the same premises by another professional who was occupying the premises earlier.

There are number of grey areas and even it is not fully clear:

• Whether the rest of the building has to be occupied by the Chartered Accountant himself for residential purpose or anybody else could be occupying the same for residential purpose? 
• What will happen if a part of the building is vacant.
• Whether there is some special treatment for Basements being used by professionals
• What is the position if more than one professional occupy a building

This matter is to be pursued with Municipal Corporation, urban development Ministry and with the Hon’ble court to get solution and clarity to the aforesaid issues. We congratulate NIRC and Central Council Members for taking an initiative in this regard, which is to be further, strengthened for the benefit of the professionals. We request the ICAI to also actively support the fight against discrimination with CA community in respect of Service Tax levy. We are committed for active support including protest ! Dharana! Satya Grah! 

The Reserve Bank of India (RBI) has allowed local firms producing or using aluminium, copper, lead, nickel and zinc to minimize risk due to price fluctuations by taking cover on international commodity exchanges. Hedging may be permitted up to the average of previous three financial years’ actual purchases/sales or the previous year’s actual purchases/sales turnover, whichever is higher. It also asked authorised dealer banks to release money only in cases of standard exchange traded futures and options. RBI also allowed hedging of funds in global markets by actual users of ATF to help the domestic aviation industry take advantage of global developments in the market.

Indian Auditing Standards are on way to convergence based on the standards set by the International Auditing and Assurance Standards Board (IAASB). The IAASB has set 39 International Standards on Auditing (ISAs) of which India follows 35, but not wholly. The IASSB is now calling for complete convergence. The four different categories standards include assessment of risk, auditing procedure, quality control and documentation process.

It has now been decided that Mutual Funds can invest in ADRs/GDRs/Foreign Securities within overall limit of US$4 bn. This will be with a sub-ceiling for individual Mutual Funds which should not exceed 10% of the net assets managed by them as on 31st March of each relevant year and subject to a maximum of US$200 mn. per mutual fund.

The Securities & Exchange Board of India (SEBI) is proposing to make it mandatory for all market intermediaries to pass an examination and obtain requisite certificate for employment in the equity market. The regulator has issued a draft note and sought public comments on the same. The certification process is to be handled by National Institute of Securities Market (NISM). Also, those who have attained the age of 50 years or have at least 10 years experience in securities market as on the specified date can also avail of exemption. Such persons would be awarded the certificate upon completing a continuing professional education course specified by SEBI within one year from the specified date. Finally, certification of persons will be looked upon as a pre-condition for registration of intermediaries.