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Category Archives: Indian Economy

Windfall tax: Will India impose it too?

This question has been a buzz in Indian media for the past few weeks. But what is this windfall tax that Indian media is going on about?

What is the windfall Tax?

When a company benefits from something that they are not responsible for and, as a result of that, enjoys the financial gain, that gain is referred to as windfall profits.

Governments, typically, levy a one-time tax over and above the normal rates of tax on such profits, and that is called windfall tax.

Why Now?

So what’s happening is global oil and gas prices are at a peak level due to the Russia-Ukraine conflict. If we take the example of any Indian upstream oil companies, say ONGC, or Oil India. They declared an all-time high net profit in the fiscal year 2021-22.

ONGC declared that its net profit grew by 258% to reach ₹40,306 crores. While the Oil India announced a net profit of ₹3,887.31 crore, which is 123% higher than in the preceding year.

As the Indian government has recently gone for the cut in Central Excise Duty and considering that it is spending more on food and fertilizer there is the requirement of any alternate levy to full fill this gap and one of the solutions could be levying a windfall tax on oil companies.

Countries like Italy and the UK have already imposed a windfall tax over the past couple of weeks.

Will such tax increase the Price of the Fuel?

Very unlikely, as this tax is not part of the input or output cost, but levied only on profit.

Is India really considering such a levy of tax?

While there is no formal denial by the government, upstream oil companies have said they have heard nothing about this.

Let me know your thoughts on whether you believe that such a tax should be levied or not?

#oilcompanies#tax#fintaxfirst#indianeconomy

Chartered Accountant in Pimpri Chinchwad

Windfall tax: Will India impose it too?

This question has been a buzz in Indian media for the past few weeks. But what is this windfall tax that Indian media is going on about?

What is the windfall Tax?

When a company benefits from something that they are not responsible for and, as a result of that, enjoys the financial gain, that gain is referred to as windfall profits.

Governments, typically, levy a one-time tax over and above the normal rates of tax on such profits, and that is called windfall tax.

Why Now?

So what’s happening is global oil and gas prices are at a peak level due to the Russia-Ukraine conflict. If we take the example of any Indian upstream oil companies, say ONGC, or Oil India. They declared an all-time high net profit in the fiscal year 2021-22.

ONGC declared that its net profit grew by 258% to reach ₹40,306 crores. While the Oil India announced a net profit of ₹3,887.31 crore, which is 123% higher than in the preceding year.

As the Indian government has recently gone for the cut in Central Excise Duty and considering that it is spending more on food and fertilizer there is the requirement of any alternate levy to full fill this gap and one of the solutions could be levying a windfall tax on oil companies.

Countries like Italy and the UK have already imposed a windfall tax over the past couple of weeks.

Will such tax increase the Price of the Fuel?

Very unlikely, as this tax is not part of the input or output cost, but levied only on profit.

Is India really considering such a levy of tax?

While there is no formal denial by the government, upstream oil companies have said they have heard nothing about this.

Let me know your thoughts on whether you believe that such a tax should be levied or not?

#oilcompanies#tax#fintaxfirst#indianeconomy

Chartered Accountant in Pimpri Chinchwad

PVR and INOX announce a blockbuster merger

PVR and INOX a blockbuster merger

PVR and INOX announce a blockbuster merger, to become a combined entity that will be headed by Ajay Bijli (owner and chairman of PVR).

PVR and INOX announce a blockbuster merger to tackle the threat of growing OTT Content. With the OTT onslaught of the theatre business, the aims of theatre owners have risen to an extent that they want to dominate the multiplex market, as the combined entity is assured to have a market share of 50% with a box office share of 42% for Hindi and English content.

But with a higher ambition comes higher scrutiny! This deal will be subject to regulatory and shareholder approval.

From a shareholder’s point of view –

Imp – In this stock deal, for every 10 shares of INOX, the shareholders will receive 3 shares of PVR. Not a bad deal!

Governance Structure –

The structure looks clean, governance wise, as Pavan Kumar Jain (chairman of INOX) will take the seat of a non-executive director with INOX promoters having a 16.66% stake in the combined entity, and Sanjeev Kumar (Joint MD at PVR) being the executive director with PVR promoters having 10.62%.

From a regulatory standpoint –

The combined entity is poised to become the largest film exhibition company in India. CCI is the first one to eye over such a merger, where the entity is set to make multiplex a two-player market.

Cinepolis, the third-largest multiplex chain in India, will become less than one-third of the merged company.

But, here’s a catch! This merger won’t require CCI’s #approval as it is below the threshold of Rs 1,000 cr. This number could have been much higher if there was no pandemic. But the point is maybe we would have never seen a merger if the situation would have been normal.

The market sentiment –

The shareholders have no reason to be upset as this synergy will ramp up the EBIDTA by Rs 150 cr (Rs 90 cr from ads & Rs 60 cr from convenience fee).

The multiplex business derives revenues from two main sources:
~Ad Revenue (INOX’s is at a 33% discount than PVR, per screen wise).
~Convenience Fee (INOX’s is 50% lower than PVR).

This deal can be weighed as if it’s a merger of Amazon Prime with Netflix! Hence, it will be very interesting to see if the regulators take into consideration the present case of bad revenues or keep in mind the real dominance of these top two players.

This deal can be weighed as if it’s a merger of Amazon Prime with Netflix –

Hence, it will be very interesting to see if the regulators take into consideration the present case of bad revenues or keep in mind the real dominance of these top two players.

Inflation – Annual Analysis – CA Near Chinchwad, CA Near Pimpri Chinchwad

The annual rate of inflation is 12.96% (Provisional) for the month of January 2022 (over January 2021), which is a continuous decline from 14.87% in November 2021 and 13.56% in December 2021. The high rate of inflation in January 2022 is primarily because of the rise in prices of mineral oils, crude petroleum & natural gas, basic metals, chemicals, chemical products, food articles, etc. as compared to the corresponding month of the previous year.

You can find us by searching for – CA in Chinchwad or CA in Pimpri Chinchwad.

Budget Updates – 2022

Update on Budget 2022 –

  • FM Housing projects allotted Rs 48,000 crore for FY23 under the PM Housing scheme. Rs 60,000 Cr allocated to cover 3.8 crore households for tap-water.
  • ⦁ Chemical-free natural farming is to be promoted throughout the country. FY22 farm procurement value to be ₹2.37 lakh crore. To implement the scheme to lower dependence on oilseed imports.
  • ⦁ Rs 1,500 Cr to be allotted for development initiatives for northeast in FY23.
  • ⦁ Required spectrum auction for 5G rollout to be conducted in FY22-23. Contracts for laying optical fibers via PPP mode will be awarded in FY23.
  • ⦁ 68% of capital procurement budget to be earmarked for domestic Defence Industry. To set up an umbrella body for Defence Equipment Certification.
  • ⦁ Additional allocation of Rs 19,500 crore for PLI in solar Photovoltaic module manufacturing, says FM.
  • ⦁ Capital goods stocks FY23 Capex target at Rs 7.50 lakh crore from Rs. 5.5 lakh crore in FY22.
  • ⦁ BUDGET 2022: CRYPTO: INDIA FIN MIN SAYS TO LAUNCH CENTRAL BANK DIGITAL RUPEE CURRENCY.
  • ⦁ 68% of defense Capex to be kept for domestic cos. Defense R&D will be opened up for industry startups, says FM.
  • ⦁ Slab raised from 10% to 14% for contribution to NPS by employers.
  • ⦁ Crypto transactions are to be taxed at 30% without any deductions.
  • ⦁ LTCG surcharge capped at 15% for unlisted assets (earlier it was graded) – this is enormous for HNIs.
  • ⦁ Customs duty on Steel Scrap extended by one year.
  • ⦁ Duty On Unpolished diamonds Is Reduced To 5% Duty Reduced on Selective Chemicals specially used in Petchem Customs Duty On Umbrellas Increased To 20% Customs Duty On Steel Scrap Extended For 1 Year.
  • ⦁ Customs duty on methanol and acetic acid reduced Positive for Balaji amines, alkylamine (methanol is a raw material) Negative for Acetic acid producer- GNFC.

Key Highlights: Budget 2022

Key Highlights, Budget 2022 –

  • ⦁ GDP growth for FY 22 is expected to be 9.2%, the highest for any large economy.
  • ⦁ PLI (Production Linked Incentive scheme) in 14 sectors for Aatmanirbhar Bharat to create 6 million jobs, an additional allocation of Rs 19,500 crore for PLI in solar PV module manufacturing.
  • ⦁ Promoting Fintech and the digital economy is a focus area for this budget.
  • ⦁ 75 digital banking systems in 75 districts by scheduled commercial banks.
  • ⦁ IBC to be amended to improve the efficiency of the resolution process, including cross border.
  • ⦁ Core Banking Services to start in Post offices.
  • ⦁ PM Gati-shakti master-plan Has scope to enhance multimodal communication through 7 engines, 2000 km of the rail network to be brought under KAVACH & Highway network to grow by 25,000 km in FY23.
  • ⦁ Contracts for implementation of multimodal logistics parks at 4 locations to be awarded in 2022-23, in PPP Mode.
  • ⦁ ECLGS (Emergency Credit Line Guarantee Scheme) to be extended up to March 2023, guaranteed cover extended by another Rs 50,000 crore.
  • ⦁ 8 million new dwellings in rural, urban areas to be completed under PM Awas Yojana.
  • ⦁ Rs 2.37 trillion worth of MSP direct payments to wheat and paddy farmers.
  • ⦁ Rs 2 trillion outlay for MSMEs. Additional loans for 13 mn MSMEs.
  • ⦁ Rs 48,000 crore allocated to housing projects under *PM Housing Scheme* for FY23, Rs 1,500 crore allocated for the development of the Northeast in FY23 & Desh stack e-portal to be launched to promote Digital infra.
  • ⦁ New provision to file the updated return within 2 years of the relevant assessment year.
  • ⦁ The alternate minimum tax for cooperative societies down from 18.5% to 15%.
  • ⦁ The tax deduction limit for state Govt employees* to NPS was raised from 10% to 14%**.
  • ⦁ Surcharge on Corporate tax pruned from 12% to 7% Surcharge on the transfer of long-term capital gains tax capped at 15%.
  • ⦁ Tax exemption to start-ups extended to March 2023.
  • ⦁ Gross GST collection for January 2022 at a record Rs 1.41 trillion.
  • ⦁ No change in income tax slab.
  • ⦁ Electric Vehicles battery-swapping policy is to be brought out with interoperability standards.
  • ⦁ Concessional duty on import of capital goods to be phased out.
  • ⦁ Duty on unpolished diamonds to be reduced to 5%.
  • ⦁ Customs duty on steel scrap extended by a year.
  • ⦁ RBI led digital rupee using blockchain to be launched in FY23, *1% TDS* on the transfer of virtual digital assets & income to be taxed at 30%.
  • ⦁ 68% of capital outlay for the Domestic defense industry.
  • ⦁ Revised Fiscal Deficit 6.9% of GDP in FY22 as against 6.8% in Budget estimates, Fiscal deficit at 6.4% in FY23.
  • ⦁ Total expenditure in FY23 estimated at Rs 39.45 trillion; total resources mobilization to be Rs 22.84 trillion other than borrowing.

Update on Banking Sector, positive for banking stocks –

Banks for the 1st time in the last three years have seen their December loan growth outpacing the January growth rate. But, it continues to be in a single-digit for the last three calendar years.