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Finance Ministry clears Fringe Benefit Tax confusions
New Delhi: The finance ministry on Monday has issued a detailed circular on elements that attract the fringe benefit tax (FBT) introduced in Budget 2005. The circular has been issued to clear doubts amongst employers as to the nature of the items that attract the tax.

The circular has clarified that FBT is not payable by a trust, fund or institution if its income is exempt under Section 10(23C) or is registered under Section 12AA of the IT Act.

The circular also clarifies that the value of any benefit by way of employees stock option is not liable to FBT. On the issue of leave travel concession, the circular says if these concessions are part of salary, then it does not attract FBT. However, if they are not, then they will be liable to FBT.

In addition, any expenditure or payment made through paid vouchers, which are not transferable and used only at eating joints or outlets, will also be free from FBT. Also, law firms having retainer-relationship arrangements and no employees will not attract FBT.

Amongst other items the circular clarifies that on the issue of expenditure on 'brand' or 'brand ambassador' or 'celebrity endorsement', such expenses will attract FBT, as the expenditure on such heads does not fall within the scope of Section 115WB.

Expenditure incurred on meetings/get-togethers of employees and families on non-festival occasions (including annual day) being entertainment expenses, would be liable to FBT. But expenditure on Independence Day and Republic Day will not attract FBT because they are not 'festivals' as normally understood.

Defining the parameters for foreign companies, the circular says FBT will apply to foreign companies if it has employees based in India. "Failure to furnish a return of fringe benefits or delayed filing of such return will result in the levy of interest at the rate of 1 per cent for each month of delay or till the assessment is made."
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Management convention: India must realign strategies to be globally competitive
Hyderabad: With India emerging as the fourth largest nation in terms of purchasing power parity (PPP) it now needs to realign its strategies and policy framework, Dr Jagdish N. Sheth, Charles H. Kellstadt Professor of Marketing, Gopizueta Business School, Emery University, Georgia said, while speaking on Management 2005- New Paradigms for India's competitiveness, at the 17th annual convention of Association of Indian Management Schools, here.

According to Prof Sheth, this is especially required since the country is on course to becoming the third largest nation in terms of PPP by 2025.

The PPP is yet another measure for world economies wherein US topped with $10 trillion, followed by China ($6 trillion), Japan ($3.5 trillion) and India ($2.6 trillion).

Prof. Sheth said that the global economies are undergoing change calling for re-alignment of approach to taking a larger share of business and trade pie.

"In order to be part of the global competitive world, and to be counted in its capabilities, India has many challenges on hand. This calls for a change in the way Indian companies approach the business. They need to have global outlook at the same time adopt best practices in manufacturing, R&D, improve productivity and while focussing on production qualities," he said.

The Government should plan strategies not based on ideology but on achieving planned results in overall economic growth, he said.
The new paradigm to make it one of the largest global economies would mean focus on encouraging industry consolidation, globalisation of domestic markets based on standardisation and branding, investing in quality and innovation, re-engineer business processes, discourage unorganised sector and encourage automation and integration.

Prof Sheth said India is destined to become a major economic power in the 21st century and its future is dependent on geopolitical realignment of nations and the emergence of Triad Markets or North America, European Union and Japan in the Asean Block.

Elaborating on Triad power, Prof. Sheth said about 75 per cent of the world trade is concentrated among Triad power of nations, which account for 70 per cent of world GDP. The Triad power desperately needs economic growth to sustain employment and political stability.
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FICCI: Three stage reforms can make manufacturing sector competitive
Chennai: The Federation of Indian Chambers of Commerce and Industry (FICCI) has suggested a three-stage implementation of reforms in order to make the manufacturing sector internationally competitive. FICCI has suggested a time-bound programme to implement labour and tax reforms in the short-term, to be followed up with action on larger issues that would call for political consensus.

The FICCI President, Onkar S. Kanwar, told presspersons here on Monday that in the first phase, over the next six months, a degree of flexibility in labour laws could be introduced in the special economic zones, export oriented units and small and medium enterprises (SMEs) engaged in exports. This could involve permitting contract labour. Those involved in exports were the ones facing the most competition, he said.

Referring to the textile sector, Kanwar said the Indian industry could not exploit the full benefits of the removal of quota regime because of competition from China, where textile companies were subject to flexible labour legislations.

Also, all indirect taxes, including State taxes and local levies, should be modvatable; environmental clearances could be based on self-certification and electronic filing permitted; and a common computerised format of applications and clearances introduced for new investment proposals.

In the second phase, to be implemented over 12-18 months, contract labour could be introduced in all SMEs; VAT rates harmonised and all State and local levies such as Central sales tax, entry tax and octroi withdrawn and guidelines framed to provide on a priority basis facilities such as power, water and roads to foreign greenfield investors.

Finally, in the third phase, contract labour could be permitted in all industries; tax on goods and services restricted to less than 20 per cent and inspections outsourced to private technical agencies.
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UK-based auto companies looking at India to lower costs
Chennai: Even as auto companies in the UK are lowering prices of their products in order to gain more volume, they are looking at low-cost countries like India to outsource materials, according to Les Parfitt, Manager, International, The Society of Motor Manufacturers and Traders Ltd, UK's leading automotive trade association.

Leading a nine-member automotive mission to India, Parfitt told presspersons that the UK companies started the cost reduction exercise last year, and this year they would formalise the outsourcing plan from India. The delegation consists of companies ranging from two-employee firms to multinationals.

India and China are low-cost destinations and it will be difficult for the UK companies to sell volume products in these countries. On the other hand, the UK firms can supply to India high technology products for the local automotive industry, he said.

According to Mr V. Eshwaran, Senior Trade and Investment Adviser, UK Trade and Investment, bilateral trade between India and UK in the automotive sector increased to about £30 million in 2003-04 compared to £20 million a year before. For fiscal 2004-05, the number is yet to be compiled, and is likely to remain at around £30 million since four or five key projects did not materialise during the year.

As per the five-year plan framed in 2001, the target for the UK trade and investment in the automotive sector was to have around 50 partnerships between the two countries. So far, around 30 partnerships have materialised, and hoped to reach 50 by the fiscal end, he said.
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RBI: Farm GDP growth declines to 1.1 per cent
Mumbai: Deficient and uneven south-west monsoon during 2004-2005 and the base effect of high growth in the previous year has resulted in a sharp drop in the growth of real GDP originating from agriculture and allied activities to 1.1 per cent from 9.6 per cent a year ago, the Reserve Bank of India has said in its annual report for 2004-2005.

In comparison, the real GDP from industry has moved up to 8.3 per cent from 6.5 per cent in the earlier year while services sector edged down to 8.6 per cent from 8.9 per cent.

Quoting the Ministry of Agriculture statistics, the RBI said overall the index of agricultural production is expected to have registered a decline of 1.2 per cent.

While agricultural production declined, milk production increased by 3.3 per cent. The share of livestock sector output in agriculture GDP increased from 30.9 per cent to 32.4 per cent and the share of fruits and vegetables output moved up sharply to 26 per cent from 17.8 per cent.

Although rains were erratic, the total area that experienced drought conditions was 18 per cent. The RBI said an analysis of the trends in rainfall deficiency and foodgrains production suggests a reduced dependence on the South-West monsoon. But Indian agriculture continues to depend on weather performance.

"Indian agriculture is becoming increasingly unsustainable in terms of maintaining productivity levels and environmental balance,'' it said.

The cropping pattern is distorted in favour of rice and wheat while key components of average consumption basket such as other cereals and pulses are being disfavoured. "The distorted cropping pattern has stemmed basically from a skewed incentive structure embedded in agricultural pricing policies, particularly minimum support prices,'' it said.

However, in recent years, rising incomes, urbanisation and globalisation have opened vistas for diversification of agriculture.

At present, value-addition to raw agriculture produce in food processing is seven per cent of the raw produce. This is expected to increase to 35 per cent by 2025. Fruits and vegetables processing is expected to increase from the current two per cent to 25 per cent during this period.
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