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BIG NEWS – Oct 06th 2017


Posted on 06-Oct-2017 Comments  0

GST Relief


The GST Council takes a more realistic view of implementation…



The GST Council meeting on October 06th was crucial in more ways than one. Firstly, it represented the first meeting after a 3-month track record of GST implementation. During that period, the biggest challenge had been the woes of exporters and the small businesses. The exporters were of the view that there was too much of a working capital issue due to delayed credits, while SMEs were under tremendous pressure on the compliance front. Both these issues were addressed in the Council meet!


Fraying exporter nerves…


Most exporters were struggling due to the delays in input tax credit (ITC)against exports. To begin with, the Council has announced that all exporters will now be paid time-bound refunds against their ITC. It needs to be remembered that while exports are free of GST, the inputs that go into exports attract GST. However, this can be claimed as a credit against the final GST payable. However, since exports are free from GST, the input tax credit becomes a crucial item for exporters in their working capital management. Secondly, the Council has proposed an e-wallet credit scheme wherein the exporters can claim notional credit against their exports. This means that the exporters will not have to wait for the actual credits to come into their accounts which will go a long way in improving their working capital situation. There is a small catch here. While exports will continue to be tax-free till March 31st 2018, all exports will attract a nominal GST of 0.1% on value post April 2018. The weak rupee, in the meanwhile, has also favored exporters in the last couple of months.


Pandering to the SMEs…


The GST Council has also addressed the woes of the small and medium enterprises in a fairly significant manner. To begin with, the Council has proposed some smart changes in the Composition scheme.The threshold for the Composition scheme has been raised from Rs.75 lakhs to Rs.1 crore. This will bring a lot more companies under the composition scheme where a small tax can be paid without the concomitant compliance requirements. Secondly, the Council has brought about some much-needed changes in the compliance requirements for small businesses. Currently, the GST calls for monthly filing of tax returns which was making the task difficult for small businesses.Now the Council has relaxed this requirement. Companies with annual turnover of less than Rs.1.50 crore can file returns once in a quarter rather than monthly.


The above 2 measures will address the two core constituencies that have been hit badly by the GST. It will soothe a lot of frayed nerves and go a long way in easing the implementation of GST. SMEs should also breathe a lot easier! ©


Classifying MFs


SEBI moves into streamline Mutual Fund schemes…



The SEBI move to streamline mutual fund schemes in India was always on the anvil. Over the last few months the regulator had expressed concerns over the plethora of schemes in the market and the unnecessary duplication of schemes among the mutual funds. SEBI has finally moved in to take the first step to streamline the mutual fund industry. Here is how…


Only 5 categories of schemes…


SEBI has stipulated that henceforth there shall be only 5 categories of MF schemes viz. Equity, Debt, Hybrid, Special Solutions and Others. Any AMC will only be allowed to launch one such scheme per category. If an AMC has 3 schemes, all of them being diversified equity schemes,then two will have to be either closed out or merged with the third scheme. The same rule will apply to sector funds and theme funds too.


Focus on scheme characteristics…


The second big shift proposed by SEBI is that the classification of the schemes should be based on the specific features of the scheme. SEBI will not permit having the same category of schemes under different names. The focus will shift from nomenclature to scheme features.This will be beneficial for investors as they will not be carried away by old wine in new bottles, as is normally the case with NFOs.This will apply to all existing schemes too!


How about Special Solutions…


Over the last few years we have seen many mutual fund schemes launched that have special solutions as their theme. For example there are schemes that are designed to help you plan for your retirement. Then there are schemes that are aimed at planning for your child’s education for the distant future. In addition there are also schemes like dynamic funds that actually help you to have a rule-based approach to your portfolio. SEBI has now made it compulsory that all such special solutions schemes must now come with a necessary lock-in period. This is a very progressive move as such customized plans need to time to play out and a lock-in will automatically instill the long-term discipline in the investor.


Classifying on market cap…


The mutual fund industry has unique schemes based on market cap like large cap funds, mid cap funds and small cap funds. However, there was no acceptable framework for classifying stocks as large cap, mid cap or small cap. Now SEBI is taking a percentile approach to market caps. From now on, the top-100 by market cap will be classified as large caps while 101st to 250th will be mid-caps. The rest of the stocks will be small caps. This clear demarcation will bring about a lot more uniformity in investors’ understanding of available mutual fund schemes! ©


Governance a hoy!


Kotak Committee proposes big changes to corporate governance…



The high powered Uday Kotak Committee submitted its report on corporate governance framework to SEBI during the week. The committee has proposed some very far-reaching changes to the existing corporate governance framework. It could have major implications for boards,auditors and for shareholders at large.


Revamping the Boards…


The committee has suggested that all corporate boards to necessarily have a minimum of 6 directors on its board. Currently, there is no stipulation on the minimum number of directors on the board of the company. The Committee has also insisted that atleast half of these directors should be necessarily independent directors and one of them should necessarily be a lady director. The committee has gone a step further and insisted that any resignation by an independent director must be followed up by a detailed explanation laying out the reasons and the circumstances leading to the said resignation. The Committee has also proposed to make it mandatory for all directors to necessarily attend half of all the board meetings failing which shareholder approval will be required for their continuance. The Committee has also proposed that the number of directorships of a single independent director be restricted to just 8 companies and only 3 companies if the said person is already the managing director of a company.


Role of auditors…


The auditors of a company have a very important role to play in upholding the highest standards of corporate governance. However, there are some grey areas here. To begin with, the auditors are still regulated by the ICAI and the SEBI has little by way of control over the functioning of auditors. The Committee has suggested that SEBI should have clear and unambiguous powers to act against the auditors where they are found to be guilty. In addition, the committee has also suggested that all audit qualifications should be quantifiable and accountable. Going ahead, the committee insists that the Board should put the financial implications of auditor qualifications to its shareholders for transparency.


Focus on transparency…


There are two clear focus areas here. Firstly, in case of sharing of information with promoters, the committee has suggested a more transparent and institutional mechanism of sharing information with promoters, especially in case of family run businesses. Secondly, it has also proposed setting up an audit committee to look into utilization of funds invested by a listed entity into an unlisted entity. This has been a common method for re-routing funds and this move could large seal that route. The big beneficiary of most of these moves should be corporate governance! ©


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