The convergence from the present VAT (Value Added Tax) regime to the GST (Goods and Services Tax) regime seems to be postponed to fiscal 2011-12 as a result of differences in the proposals and perspectives among States on the constitutional amendment for the smooth transition.
A few States have also suggested taxing of services by the Centre and passing a certain portion to the States. Does it seem to be the only alternative for obviating the need for a constitutional amendment as opined by a few States?
The proposal, if any, to view service tax as separate would strike at the very roots of GST. For, GST is an integrated taxation that does not discriminate between goods and services. In other words, its centrepiece is all value additions, whether by way of goods or services, must be captured into the tax net. Implementation of GST requires a strong Centre which is why the US has not attempted VAT. The 50 States there guard their turfs assiduously which is also substantially the case in India. States want a greater share of action and revenue than what the Centre is prepared to concede. Naturally in this war of attrition, the BJP-ruled States are holding out for more than the Congress-ruled States.
‘Carry backward’
Clarification on the provision of ‘carry backward of losses’ in the US and ‘set off and carry forward of losses’ in India’.
In India also the issue of carry backward of losses has been debated extensively and threadbare before deciding not to provide for such a regime. We allow businesses to carry forward their losses so they can be set off against future profits — now within eight years and indefinitely without any time limit when the Direct Taxes Code kicks in.
In the US, carry backward is also allowed but not for more than three years. Thus, if a company has paid profit during the last three years but there is a loss this year, it can claim refund of taxes by setting off the current loss against the earlier profits. The Indian government seems to be allergic to the idea, sensible though it is, for the fear of opening the floodgates for tax refunds. But rationally speaking, there is a case for carry back of losses when losses can be carried forward.
Rotation of Auditors
Under the US SOX Act, auditors need not be rotated but the audit partner needs to be. Does it make sense?
Frankly, it doesn’t. A firm cosies up to the audit entity as much as its partner does. Therefore, there is a strong case for rotating the firm itself from one entity to another periodically. The Companies Bill, 2009 before Parliament is reportedly providing for both — not only the firm would be changed but also the partner cannot resurface this time around as a partner in the new audit firm which has been allotted the audit of the same company. This is a sound move.
Subsidiary Phobia
Why does the Companies Bill, 2009 suffer from subsidiary phobia?
Well, the nation has had some bad experiences with convoluted pyramid structures of companies. This came into sharp relief especially during the infamous IPL investigations when companies emerged as wheels within a wheel. The ownership of a particular team defied investigation as to the source of its funding because through layers of subsidiaries often the trail ended in tax havens with banking secrecy thrown in for good measure.
At the same time, subsidiaries do have their role. Companies often find them a better alternative vis-à-visdivisions of the promoting company because first of all a subsidiary does not blotch the balance sheet of the parent in red during its infancy in a milieu where consolidated accounts is not mandatory. Besides, a subsidiary is any day better for entering into a foreign collaboration in a niche area, raising money from public and for M&A. But the Companies Bill, 2009 does not put a peremptory ban on subsidiaries. All that it says is a subsidiary cannot spawn a subsidiary.
