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Current Events 11 May 2016



11 MAY 2016


Harish Rawat back as Uttarakhand Chief Minister

The Supreme Court declared deposed Uttarakhand Chief Minister Harish Rawat as the winner of the floor test. Mr. Rawat got 33 votes out of 61 in floor test, the court said. He will assume office as Chief Minister after President's rule is revoked, the court said allowing the Centre to revoke forthwith the order of proclamation of President's rule in the State.

No irregularities were found in the voting and nine MLAs could not vote due to their disqualification, the court added.


Centre to consult residents, monks on Tawang hydel projects

Fearing Chinese support in the unrest at Tawang, a town on India-China border in Arunachal Pradesh, the government has decided not to go ahead with the planned hydroelectric projects in the district without consulting the monks, a section of whom have been protesting against the dams.

According to officials, an anti-dam activist Lobsang Gyatso was arrested on April 28 after an audio clip surfaced where he was heard boasting about Beijing's help to stop the projects. In the purported clip, Gyatso is heard questioning the nationality of Tawang Monastery abbot Guru Tulku Rinpoche, who has prevented monks from joining anti-dam protests. Following the arrest, Gyatso's supporters clashed with the administration and two monks were killed in police firing. The town has been on boil since.


Will T.N. swing back to bicameral balance?

The promise of the Dravida Munnetra Kazhagam (DMK) in its election manifesto to take steps to revive the Legislative Council in Tamil Nadu has brought to the fore the long tussle between the party and its principal rival, the All India Anna Dravida Munnetra Kazhagam, over the desirability of having a second chamber in the State legislature.

The AIADMK regime headed by M.G. Ramachandran abolished the Upper House in the State in 1986. When in power, the DMK made three attempts to revive the body - in 1989, 1996 and 2010. On each attempt, a subsequent AIADMK regime would pass resolutions rescinding the earlier decision.

The attempt in 2010 almost fructified, with both Houses of Parliament passing legislation in May 2010 to create the Council. However, the delimitation of constituencies to form the 78-member Council was challenged before the Supreme Court. The election was, therefore, stalled. However, in 2011, in the early days of the present regime of Ms. Jayalalithaa, the Assembly adopted yet another resolution to ensure that the Council was not revived. Why does a State need an Upper House? DMK founder C.N. Annadurai used to explain it with a "cup and saucer" analogy. The Council, he said, was like a saucer that can cool down a hot issue through its enlightened debates.

When the DMK was elected to power in 1967, Annadurai, who had not contested the Assembly election, became Chief Minister by virtue of his election to the Council.

C. Rajagopalachari was Chief Minister twice and on both occasions, he depended on the Council route to enter the legislature. "His detractors used to criticise him that he entered the corridors of power through the backdoor."

A major argument against reviving the Council is that it was not really a forum for intellectuals, academics and professionals. It was gradually converted into a safe harbour for political leaders defeated in the Assembly polls.



Capital gains on FDI from Mauritius to be taxed

Starting next year, the Centre will tax capital gains on investments from Mauritius, the tiny island from where India has received nearly a third of its total foreign direct investment (FDI) inflows since 2000.

The source of the leak in tax revenue was plugged after the two countries recently signed a protocol at Port Louis, Mauritius. The protocol amends the convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains.

This protocol is a result of many years of negotiation as well as the global momentum on tax treaty abuse and double non-taxation, including the G20's move over inappropriate use of treaties. However, following the agreement, Mauritius could cease to be the preferred route for FDI and portfolio investments into India.

The amendment will tackle long-pending issues of treaty abuse and round-tripping of funds, attributed to the India-Mauritius treaty, curb revenue loss, prevent double non-taxation, streamline the flow of investment and stimulate the flow of exchange of information between India and Mauritius, according to an official statement.

The 1983 Double Taxation Avoidance treaty made Mauritius, which taxes capital gains at near-zero rates, an attractive "post box address" for foreign investors to route investments into India. In addition, regulators in India suspect that Indians avoiding taxes set up shell companies in Mauritius, concealing identities and channeling cash or stock market investments through "round tripping" and "participatory notes".

Over the years, the Mauritius route has become less preferred; the share in the total assets held by foreign institutional investors (FII) of those from Mauritius fell to 19 per cent in February 2016 from 28 per cent in January 2012. Similarly, participatory notes, another popular mode used for round-tripping since they offer anonymity to investors, as a percentage of FII assets, were down to 10 per cent by February-end from 18 per cent in 2010.

In a two-year transition phase, from April 1, 2017 to March 31, 2019, the capital gains will be taxed at a concessional tax rate of 50 per cent of the domestic rate, according to the statement. Capital gains on investments made before April 1, 2017, will not be taxed in India.

Those companies will be exempt from paying tax on capital gains in India that can prove they spent at least Rs. 2,700,000 in Mauritius during the immediately preceding 12 months, it said.

Interest arising in India to Mauritian resident banks will be subject to withholding tax in India at the rate of 7.5 per cent in respect of debt claims or loans made after March, 31, 2017. However, interest income of Mauritian resident banks in respect of debt-claims will be exempt from tax in India.


Tax dodge of Rs.50,000 cr found

The government has unearthed evasion of about Rs.50,000 crore of indirect taxes and undisclosed income of Rs.21,000 crore over the last two years, according to the Finance Ministry.

The government has initiated prosecution in 1,466 cases over the last two years compared to the 1,169 cases in the previous two years.

However, the amount unearthed so far as indirect tax evasions seems a drop in the ocean as the government collected indirect tax revenue of Rs.5.4 lakh crore and Rs.7.1 lakh crore in 2014-15 and 2015-16, respectively, with indirect taxes comprising an increasing share of total tax collections at a time when direct tax collections were missing their targets.

The statement listed out other steps taken to tackle black money, including the Black Money Act being enacted with strict penalty provisions and the Special Investigation Team constituted under the chairmanship of ex -Supreme Court Judge Justice M.B. Shah.

The government has also formulated a new Income Disclosure Scheme, which will open on June 1, 2016, and has introduced amendments to the Prevention of Money-laundering Act, 2002. At the same time, the government amended the Foreign Exchange Management Act (FEMA), 1999 as well.

"The amendments provide for seizure and confiscation of value equivalent, situated in India, in case any person is found to have acquired any foreign exchange, foreign security or immovable property, situated outside India, in contravention of Section 4 of FEMA," according to the statement.


Bankruptcy code to help in ease of doing business: Crisil

The Insolvency and Bankruptcy Code Bill passed in the Lok Sabha and awaiting final approval of the Rajya Sabha is a ‘watershed' reform that will facilitate ease of doing business by identifying and resolving cases of insolvencies in India, according to Crisil Ratings.

"While lenders and asset reconstruction companies (ARCs) are immediate beneficiaries, the code will also significantly improve India's ease of doing business ranking," said a Crisil statement, adding the code enhances the right of a creditor to identify insolvency and initiate resolution proceedings through an ecosystem, including new regulator and information utilities.

Over the long-term, it will enhance creditor rights, boost investor confidence and facilitate deepening of India's corporate bond market. It attempts to simplify legal processes, preserve value for creditors and provide them with greater certainty of outcome.

Crisil's analysis shows recoveries by ARCs have been low, at about 36 per cent, with the average resolution taking about five years.

That is in line with a World Bank study, which said it takes more than four years to wind up a sick company in India, with recovery at just at about 25 per cent, among the lowest in emerging economies. The new code prescribes a much faster timeline of 180 days for resolution.

"Quicker resolution will allow ARCs to churn capital faster. It will also attract investments into the distressed assets space," said Crisil Ratings.

Crisil's analysis of recoveries indicate that smaller assets (debt up to Rs 100 crore) have a shorter resolution timeframe because of the greater bargaining power of banks.

It observed that the current asset quality challenges at banks stem from disproportionate exposure to large corporates, and these corporates could continue to take legal recourse to delay recovery proceedings, which would challenge effective resolution within the proposed timeline of 180 days.


Uber to end surge pricing? Yes and no

Is Uber working toward ending surge pricing, the rise in fare when the demand for taxis shoots up? Uber has said ‘yes,' and ‘no'.

The local government in Delhi had recently banned the San Francisco-based company from applying surge pricing that kicks in when demand outstrips supply. This feature generates sharp reactions in the 58 countries in which Uber operates. Surge pricing is also a key point of conflict between the rider and the driver even as Uber is campaigning to add more numbers of both.

The company considered surge pricing as a market failure and was working on algorithms that would predict demand and eliminate the situation of demand-supply mismatch.

Formally doing away with surge pricing can have a negative impact on its ability to attract drivers, who are already complaining - in the U.S. - that a series of downward fare revisions have lessened Uber's appeal.

But the question, however, remains as to how an algorithm could incentivise a driver who might want a higher fare after an IPL match or a concert. In the U.S., many Uber drivers get on to the road only during surge hours, and in fact, wait for it.

Though earning more was attractive to drivers, the initial enthusiasm has worn off. Drivers realize that there is more demand at a given time because there are more people out on the streets, making driving that much tougher.



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