High service tax: Phone calls, eating out to become expensive from today

Telephone calls, restaurant bills and other activities will cost more from today with the budgetary proposal of raising service tax rate to 12% coming into effect from Sunday.

In order to garner an additional Rs 18,660 crore during 2012-13, finance minister Pranab Mukherjee increased the service tax from 10% to 12%.

The proposal, which will make host of services including travel by air-conditioned rail coaches, courier services and coaching classes expensive, comes into effect from April 1, 2012.

There are over 120 services which attract service tax. These also include air travel, life insurance, beauty parlour, advertisement, dry cleaning, health clubs, cable operator, credit card, credit rating etc. 

The minister in his Budget speech last month had said, "I propose to raise the service tax rate from 10% to 12% ... My proposals from service tax are expected to yield an additional revenue of Rs 18,660 crore."

The government proposes to collect about Rs 1.24 lakh crore from service tax during the current financial year, up from Rs 95,000 crore during 2011-12.

The services sector accounts for about 59% of the country's Gross Domestic Product (GDP).

In order to expand the base of service tax, the Minister proposed a negative list, a notification regarding which would be issued later.

Under the negative list proposal, the service tax will be levied on all services expect those mentioned in the list. At present the tax is levied on the basis of a positive list, meaning that it applies only to specified services.

The proposed negative list of services, on which the increased service tax of 12% will not be levied, include admission to entertainment events, access to amusement facilities and travel by radio taxis and auto rickshaws.

Other important services which will not attract the tax include funeral, burial, mutate services and transport of deceased.

While unveiling the negative list, the government had clarified that the tax will be levied on travel by first class and in air conditioned rail coaches, transport of goods by a transportation and courier agencies.

As regards education, the service tax will not be levied on school, university education and approved vocational courses. The coaching classes and training institutions, however, will continue to be subject to service tax.

In order to bring as many services as possible in the net, the government has come out with a very wide definition of service. With some exception, it has been defined service as "any activity carried out by a person for consideration".




By  RAZI ANWAR (PGDM 2nd sem)

Rail passengers to pay more in AC1, AC2 classes from Sunday

 Passengers travelling in AC 1 and AC 2 classes in trains will have to shell out more from Sunday when the upward revision in higher class fares will come into effect. The fare is also being hiked in Executive class and first class as per the Rail Budget 2012-13 announcements.

The revised tariff will also be applicable to tickets issued in advance for journey to commence on or after April 1, 2012.

"In case tickets are already issued at pre-revised rates, the difference in fares will be recovered from passengers either by TTEs in trains or by the booking offices before commencement of the journey," said a senior Railway Ministry official.

As per the decision, passenger fares will be increased 10 paise per km in first class, 15 paisa per km for AC 2 and 30 paisa per km for AC 1 from April 1.

The platform ticket is also to cost Rs 5 from tomorrow, said the official.

Though there was proposal for fare hike in all classes including AC III, sleeper class, suburban and second class in the Rail Budget, new Railway Minister Mukul Roy decided for partial roll back of fares in these classes.

Railways have earned Rs 28,000 crore revenue from passenger fares in 2011-12. The national transporter was aiming to earn Rs 36,000 crore in 2012-13 with the five per cent expected growth in passenger volume in 2012-13 and the hike in all classes as proposed by the former Railway Minister Dinesh Trivedi.

However, now with the roll back in major classes like AC III and second class, railways is expected to earn only Rs 400 crore from the hike in AC 1, AC 2 and first class fares.

The revised fare list is being displayed at all stations for public and the changed fare tables are also available on the ministry website, said the official.

By  RAZI ANWAR(PGDM 2nd sem)

Market will be very choppy for next few weeks: Jigar Shah

GAAR is playing on the minds of the people. Those people who are directly affected and those who are not affected, both are looking at some clarity on this issue and perhaps that is detering people to probably use their cash.

The second aspect is whether the central bank will cut the interest rate or not. That is also going to be very crucial because the market is lacking a trigger. It is not that the market is having lots of risk factors which are unknown. That was the situation four-five months back but now most of the things are known and they are priced in. But there is no trigger yet for the market to go up and that is because of the interest rate.

Interest rate will be a key determinant and if it is pushed back to let's say June, that is not going to be very good for the sentiment of the market and people would still keep their cash with them or probably invest in some high yielding debt. So I feel market will be very choppy and range bound for the next few weeks. 




bipin kumar karn
pgdm2sem
roll no-8

Expect Indian shares to correct even if RBI cuts rate:

Indian shares may continue to drift lower even if the Reserve Bank of India cuts interest rates in April, as uncertainty on taxation of foreign portfolio investment from some destinations is weighing on the rupee as well as equities, said Bank of America.

Foreign brokerages have started complaining at recent Indian provisions to tax indirect investments and combat tax evasion, saying they are couched in ambiguous language and could also be used to target overseas market investors.

The views are split on a possible rate cut by the RBI in April as oil prices remain higher even as the country's economic growth is slowing.

Dollar demand from oil companies and a slowdown in foreign institutional investment flows in March have resulted in a 3.5 percent depreciation of the rupee.

While foreign investors are yet to turn heavy sellers of Indian stocks, historically the rupee's depreciation has been negative for the market, according to strategists.

"Looking at all periods of sharp rupee depreciation (more than 3 percent in a month), markets were negative on 75 percent of the occasions and fell by an average of 4.2 percent," said BofA in a note.

ASHRAF HUSSAIN

PGDM-2^nd semester

six blacklisted companies close

New Delhi, Mar 29 (ANI): Defence Minister A.K Antony on Thursday said that six companies - four foreign and two Indian - have been blacklisted from the defence procurement process for 10 years for alleged involvement in a multi-crore ordnance factory scam.

"Six companies have been blacklisted for 10 years by the government. The banned entities included four foreign companies and two Indian companies and the action against them was taken following recommendations by the Central Bureau of Investigation (CBI)," Antony said at a press conference at the DEFEXPO here.

"In the process of procurement, if it is established at any stage of the contract that there is malpractice then we will cancel the contract. Even after signing the contract if anything is found we will take action, we have very strong safe guards," he said.

"We have cancelled many major contracts following corruption charges. We have very strong safeguards on integrity form. For any contract beyond Rs 100 crore integrity pact is a must. In the integrity pact, strongest action will be taken against anybody found to be involved in malpractice. We will protect our interest and money," he added

Antony further said that the current offset policy incorporated into defence contracts with foreign companies need to be expanded, as the present policy would not be able to absorb the ongoing offset amount.

The six blacklisted companies include the Singapore Technologies, Israeli Military Industry, Germany's Rheinmetall Air Defence, Corporation Defence of Russia, Delhi-based T S Kisan and Co Pvt Ltd and R K Machine Tools of Ludhiana. (ANI)

bipin kumar karn

WB TO SET FINANCIAL ASISTANCE TO STATE

BHUBANESWAR: The World Bank pledged to step up financial assistance to the State to help it pursue the goal of sustainable and inclusive growth by better utilisation of financial aid.

�The issue of raising financial support was discussed here at a meeting on Wednesday between visiting World Bank President Robert B Zoellick and Chief Minister Naveen Patnaik.

�The discussions, according to a World Bank release, also focused on how its $ 600- million programme for the State could better address developmental challenges. The sectors identified for possible future focus included mining and water management.

�“Odisha has made good development progress and the Government should be congratulated on achieving fiscal stability and for its focused efforts to overcome poverty, Zoellick said adding, the State’s vast mineral resources can make a substantial contribution to India’s growth in strategic sectors and also mitigate global pressure on commodity prices.

�In addition to World Bank-assisted projects, the International Finance Corporation (IFC), the private sector arm of the Bank, has initiated a new Odisha inclusive growth partnership to help the State generate potentially transformative investments in key areas like agribusiness, downstream metal manufacturing and tourism, Zoellick told a media conference.

�Responding to a query on expansion of the Integrated Coastal Zome Management (ICZM) programme and TRIPTI, the livelihood programme, the World Bank Chief said ICZM was recently launched. Good experience learned from the pilot project will be extended to west coast and beyond the country.

�TRIPTI is a part of the livelihood programme under the National Rural Livelihood Mission (NRLM) launched in 10 districts of the State and the Government of India will take a decision on the extension of the programme.

�To a question on further assistance to the power sector reforms in the state, the Zoellick said distribution sector is facing challenges in many parts of the country and this needs to be strengthened. “The World Bank has been a development partner for the State and we hope to continue a mutual engagement in addressing these issues,” he added.

�Zoellick, who is on a five-day India tour, is visiting Odisha to gain first-hand view of the State’s economic and social challenges and also to find out how best the Bank could support it. He visited Bhitarkanika Wildlife Sanctuary in Kendrapara district on Wednesday.

DHANANJAY SINGH

PGDM   2^ND semester

Moody's takes actions on 7 Portuguese banks; Outlook negative

The debt and deposit ratings of Banco Santander Totta (a subsidiary of Banco Santander S.A.) were lowered by two notches to Ba1.

Moody's Investors Service has taken rating actions on seven Portuguese banks and banking groups. The senior debt and deposit ratings for four banks were downgraded by one notch, aligning their ratings at the same level or one notch below the ratings of the Portuguese government, which was downgraded to Ba3 from Ba2 on 13 February 2012. The debt and deposit ratings of Banco Santander Totta (a subsidiary of Banco Santander S.A.) were lowered by two notches to Ba1. The debt and deposit ratings of Banco Comercial Portugues (BCP) and of Caixa Economica Montepio Geral (Montepio) were confirmed at Ba3. All ratings have a negative outlook. The downgrades of most of the banks' debt and deposit ratings reflect Moody's downgrades of their standalone bank financial strength ratings (BFSRs), which are driven by the following key factors: Expected further deterioration of banks' domestic asset quality and profitability given the country's poor economic outlook which is driven in part by the austerity measures needed to address the sovereign's weakening credit profile Additional asset risks stemming from banks' substantial holdings of government-related debt Prolonged and ongoing lack of access to private wholesale funding sources; While none of these pressures are new, in Moody's view they continue to mount against the backdrop of the ongoing euro debt crisis. Positively, Moody's recognises the supportive stance toward the Portuguese banking system by its government and the euro area authorities including the ECB. However, as discussed further below, Moody's has concluded that this supportive stance does not fully offset the aforementioned negative drivers. All of the banks' standalone credit assessments have negative outlooks, reflecting the very challenging operating environment, which will likely continue to exert negative pressure on the banks' operating performance. The negative outlooks on the banks' debt and deposit ratings reflect the negative outlook on their standalone credit assessments and on the Portuguese government's Ba3 bond rating. Today's rating actions conclude the review for downgrade of Portuguese banks, initiated on 15 February 2012 (see "Moody's Reviews Ratings for European Banks"). That review was part of Moody's wider review of European financial institutions driven in part by (i) the difficult European operating environment caused by the prolonged euro area crisis; and (ii) and the deteriorating creditworthiness of certain euro area sovereigns (including Portugal). Moody's has also concluded its review of systemic support currently incorporated in the ratings of subordinated debt of Portuguese banks, which was initiated on 29 November 2011, and removed all systemic support from these ratings. As a result, the subordinated debt (and, where applicable, junior subordinated debt) ratings of two banks (Banco Comercial Portugues and Banco Espirito Santo) have been affected, since the ratings on those securities are now being notched off these banks' adjusted standalone credit assessments, which do not incorporate government support assumptions. This action reflects Moody's view that creditors holding subordinated debt of Portuguese banks are more likely to suffer losses than holders of their senior unsecured debt in the event that the government provides financial support to the banking system. Rating Actions Overview Caixa Geral de Depositos (CGD): The standalone BFSR was downgraded to E+ (mapping to B1 on the long term scale) from D (Ba2) and the debt and deposit ratings were downgraded to Ba3/Not Prime from Ba2/Not Prime. Banco Comercial Portugues (BCP): The standalone BFSR was downgraded to E+ (B2) from E+ (B1) and the debt and deposit ratings was confirmed at Ba3/Not Prime. Banco Espirito Santo (BES): The standalone BFSR was downgraded to E+ (B1) from D- (Ba3) and the debt and deposit ratings were downgraded to Ba3/Not Prime from Ba2/Not Prime. Espirito Santo Financial Group (ESFG, the parent of BES): The debt ratings were downgraded to B2/Not prime from B1/Not Prime. Banco BPI (BPI): The standalone BFSR was downgraded to E+ (B1) from D (Ba2) and the debt and deposit ratings were downgraded to Ba3/Not prime from Ba2/Not Prime. Banco Santander Totta (BST): The standalone BFSR was downgraded to D- (Ba3) from D+ (Ba1) and the debt and deposit ratings were downgraded to Ba1/Not Prime from Baa2/Prime-2. Caixa Economica Montepio Geral (Montepio): The standalone BFSR was confirmed at D- (Ba3) and the debt and deposit ratings were confirmed at Ba3/Not Prime. Banco Internacional do Funchal (Banif): The standalone BFSR was downgraded to E+ (B2) from D- (Ba3) and the debt and deposit ratings were downgraded to B1/Not Prime from Ba3/Not Prime. Ratings Rationale Rationale for Downgrades of Standalone Credit Assessments In Moody's view, the intrinsic credit strength of Portuguese banks is weakening, primarily owing to the three drivers mentioned above and discussed below: Asset Quality and Profitability likely to deteriorate in difficult conditions Portugal's increasingly challenging economic prospects will exacerbate the intense pressure on Portuguese banks' already weak profitability and asset quality. Moody's expects loan loss provisions to absorb an increasing portion of banks' pre-tax income. At the same time, margins will be further pressured in light of the expected increase in non-earning assets, higher funding costs (particularly of retail deposits) and continued balance sheet deleveraging. The Portuguese economy, which Moody's expects to shrink by 3.6% during 2012, is weighed down by the weakening sovereign credit profile (reflected in the recent government bond rating downgrade to Ba3 from Ba2 on 13 February 2012), by the government's austerity programme needed to consolidate the sovereign's debt position and by an increasingly restricted supply of credit, as banks seek to reduce risk assets given the demands on them to deleverage from investors and regulators. The recapitalisations orchestrated (and most likely funded) by the Portuguese government as a means of supporting the solvency of the Portuguese banking system and perhaps ultimately bolstering confidence in it are likely, in the short term, to further inhibit credit creation. Additional Risks from Banks' Government Bond Holdings Portuguese banks, like most banks, have substantial exposures to their domestic sovereign. Holdings of government bonds averaged around 80% of core capital as of end-December 2011 for the seven banks covered by today's announcement. This direct exposure, together with exposure via counterparties and customers who are themselves sensitive to the sovereign, means Portuguese banks are highly sensitive to the sovereign's weakening credit profile (see "Moody's adjusts ratings of 9 European sovereigns to capture downside risks" and "How sovereign credit quality may affect other ratings", 13 February 2012). Prolonged and Ongoing Lack of access to Private Wholesale Funding sources Portuguese banks face a prolonged loss of access to private sources of wholesale funding. They are, to all intents and purposes, unable to operate on a standalone basis without external funding. Moody's has taken into account the extensive routine and extraordinary financing made available by the Portuguese government and the euro area authorities in preserving the banks' BFSRs and debt and deposit ratings in the 'B' and 'Ba' category. The rating agency also acknowledges the generally supportive stance of the euro area authorities including the supportive effect of recent ECB operations, which have sharply reduced the risk of any bank failing because of illiquidity. However, this supportive stance does not mitigate Moody's concerns. Such extraordinary support will ultimately buy time, however there is still significant uncertainty about how that time will be used to resolve the underlying problems driving the euro area debt crisis or to enable the Portuguese banks to re-enter the markets. The recent downgrade of the Portuguese sovereign reflects the heightened uncertainties over the government's ability to achieve its debt targets given, for example, the weakening of the Portuguese economy. In such an environment it is very difficult to see the Portuguese banks re-entering the private markets in the foreseeable future. The longer the banks remain reliant on public sector support, the greater the probability that conditions come to be attached to continued funding and liquidity support, with negative consequences for creditors including bondholders. Moody's has therefore concluded that it should continue to place only limited additional weight on the availability of routine and extraordinary funding and liquidity support arrangements in assessing the banks' standalone strength, and in determining the appropriate uplift factored into debt and deposit ratings.  By RAZI ANWAR (PGDM 2nd sem)