Tags:
Journalism of Courage
NEW DELHI, DEC 15: The group on knowledge-based industries of the Prime Minister8217;s advisory council on trade and industry has called for removal of the concept of quot;par valuequot; of shares, elimination of taxability of sweat equity and stock options at the point of subscription, creation of regulatory framework for structuring of venture capital funds and encouragement for creation of local pool of capital for venture capital activity.
The committee led by Infosys chief N R Narayanamurthy has also suggested that the exchange earner8217;s foreign currency account should be made fully convertible on the current and freely convertible on capital account.
Other recommendations of the group include modification of Central Board of Direct Tax guidelines pertaining to restriction on investment instruments, inclusion of service sector, time bound investments schedule, and bonus and rights shares.
It has further stated that companies should be allowed to download software from the internet, investment in start upsabroad be permitted and restriction opening of bank accounts abroad be eased.
The group underscored the need for tax efficient vehicle for setting up venture capital funds. It felt that limited partnerships concept as permitted in the US was the most ideal form of organisation for venture capital. quot;This vehicle will be a pass through for tax purposes and the investor will be taxed in the hands on distribution.quot;
It added that policy framework should be created to enable pension funds and insurance companies to invest in the venture capital funds. That could be done in form of tax incentives, permitting pension funds and insurance companies to contribute at least 5-10 per cent of the corpus to venture capital funds with proven track.
On obtaining approval from Reserve Bank of India for repatriation and exist valuation, the group suggested post-repatriation reporting should be adopted. At present, overseas funds are required to seek prior approval for repatriation.
On the implications of quot;par valuequot; ofshares, the group pointed out any issue at a differential price amounts to preferential allotment and requires government clearance. Moreover, though the proposed companies bill permits issue of shares at discount, the process is making such issue is tedious and requires multiple approvals from government agencies.
Given this, the government should remove the concept of quot;par valuequot; of share to enable entrepreneurs to fully avail the advantages of sweat equity.
On section 70 of the Companies Bill pertaining to issue of shares at premium or discount, the group has suggested that the company should be allowed to issue shares at any value of its choice and it may be allowed to fix a fair value of its choice only for the purpose of payment of stamp duty.
The group felt that tax should be levied on only on capital gains realised from the sweat equity and stock options.
As for problems under excise and customs, the group has identified these as custom bonding of software technology parks STP, issue ofexport promotion credit guarantee EPCG licences, issue of special import licenses, grants for setting up cyber parks and export obligations.
The group has suggested that software units operating under STP scheme be allowed to import all items including office equipment and furniture and items included in the negative list for software development purposes.
It has also been suggested that re-imports and re-exports of defective components should be allowed based on STP approval, the requirement of furnishing bank guarantee be dispensed with, and limit of domestic tariff area DTA sales by STP units be removed.
