On Episode 353 of The Core Report, financial journalist Govindraj Ethiraj talks to Sachin Menon, senior tax consultant and former partner at KPMG as well as Rajesh Baheti, managing director at Crosseas Capital Services.
SHOW NOTES
• (00:00) The Take: Trigger Happy Tax Officials
• (04:41) Global cues push Indian markets to record closing highs
• (07:11) GST data is better for July and the numbers are being announced once more
• (08:38) Maruti’s record growth is fueled by customers buying CNG cars, with 1/3rd of cars running on them
• (10:39) High pitched tax assessments like Infosys, the case and impact
• (20:18) Did online discount brokerages trigger the explosion and thus scrutiny of India’s derivatives trade?
The Take: Trigger Happy Tax Officials
Think of a tax official as a senior sales manager at a company selling air conditioners. Their performance & bonuses are linked to sales targets. Similarly, an income tax official has targets based on identifying infractions & maximizing tax collection. High-pitched assessments by tax officials often lead to inflated demands that get reduced or dismissed in courts, causing companies significant time & resource burdens. For instance, Infosys recently faced a $4 billion tax demand, sparking controversy & debate about the government's understanding of the IT industry's operating model. This situation leads to unnecessary litigation & affects investor & customer perceptions of India’s business environment.
Markets:
The stock market experienced a resurgence, with the BSE Sensex & NSE Nifty50 reaching new highs. The Sensex soared to an all-time peak of 82,129.49 points before settling up by 126 points at 81,867, while the Nifty50 topped off at 25,078.30 points during the session & closed slightly above the 25,000 mark at 25,010. Notable gains were observed in shares of major corporations such as Power Grid Corporation of India & HDFC Bank, reflecting investor optimism. This bullish trend is further buoyed by the anticipation of U.S. interest rate cuts, likely sparking additional foreign inflows into domestic equities. The AI technology sector also saw significant investment interests, particularly Nvidia, which has enjoyed a stock increase of over 500% since the release of ChatGPT in November 2022.
GST Data is Released Once Again:
July saw a 10.3% increase in Gross GST collections, showing robust domestic revenue growth. This rebound comes after a period of selective data release, suggesting a recovery in economic activities & consumer spending.
Oil Prices Rise:
Oil prices increased following geopolitical tensions in the Middle East, specifically after Iran's retaliatory actions. This has spurred a flurry of activity in the oil options market, with traders also closely monitoring OPEC's upcoming decisions.
How Cheap CNG Is Driving Maruti’s Sales:
Maruti Suzuki reported that CNG vehicles accounted for a third of its total sales this quarter, highlighting cost advantages over diesel & petrol models. This shift is partly due to reduced operational costs associated with CNG usage, despite higher initial vehicle prices.
The Infosys GST Tax Case:
Infosys was hit with a significant GST demand over transactions with its overseas branches, which the authorities claim involves tax liabilities under the Reverse Charge Mechanism. Infosys disputes these claims, stating compliance with all tax obligations. The issue highlights complexities in tax laws affecting software export companies, which often involve intricate international operations & financial arrangements.
The Perils Of Futures & Options Trade:
Discussion on the risky nature of futures & options trading emphasized that a large majority of individual traders face losses. Regulatory attention is increasing on ensuring that traders are adequately informed & capable of understanding the risks involved in these financial instruments.
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