Tuesday, August 23, 2016

National Sports Day on 27th Aug, 2016 at FICCI

Today at 18:00

World Parliament on Sanitation


GSTN: Caution Should be the Key Word

GSTN: Caution Should be the Key Word

August 23, 2016                                                                                                                     Prof Vaidyanathan
Goods and Services Tax [GST] is a broad-based, comprehensive, single indirect tax which will be levied concurrently on goods and services across India. It will replace most of the Central and State indirect taxes such as Value added Tax (VAT), Excise Duty. Service Tax, Central Sales Tax, Additional Customs Duty and Special Additional Duty of Customs. GST will be levied at every stage of the production and distribution chains by giving the benefit of Input Tax Credit (ITC) of the tax remitted at previous stages; thereby, treating the entire country as one market. Introduction of Goods and Services Tax (GST) in India is perceived to be the most ambitious initiative in the arena of indirect tax reform. It would change the Indian tax structure and pave the way for modernization of tax administration.
Already GST bill has been approved by both the houses of Parliament and getting approved by State assemblies. It needs fifty percent or 15 assemblies to approve for getting Presidential assent.
A company has been set up primarily to provide IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders for implementation of the Goods and Services Tax (GST).Goods and Services Tax Network (GSTN) is a Section 25 (not for profit), non-Government, private limited company. It was incorporated on March 28, 2013. The Government of India holds 24.5% equity in GSTN and all States of the Indian Union, including NCT of Delhi and Pondicherry, and the Empowered Committee of State Finance Ministers (EC), together hold another 24.5%. Balance 51% equity is with non-Government financial institutions. The Authorised Capital of the company is Rs.10crore.
As politicians argue fiercely and persistently over the nitty-gritty of this long-awaited and ambitious indirect tax reform that promises to make India a common market, the organisation responsible for creating and managing the complex IT backbone that will make GST operational, the Goods and Services Tax Network(GSTN), has moved, without fanfare, into glitzy new headquarters at Worldmark I, part of a vast commercial multi-storey chain owned by Sunil Mittal-promoted Bharti Realty.
The 30,000 square foot space that GSTN occupies on the fourth floor couldn’t be a bigger contrast to its cramped quarters in Hotel Janpath in central Delhi, a temporary base of operations after it was incorporated in March 2013. There is little to suggest that this Section 25 (not-for-profit) company is a government organisation in which the Centre and states hold 25.5 per cent each (a clutch of banks and private sector institutions hold the rest).
With its carefully delineated spaces, clean lines and such stylish trimmings as jazzily coloured “breakout rooms”, a canteen where it is compulsory for all staffers, chairman downward, to eat, and a “ladies’ room” for expectant mothers to rest, this could readily be mistaken for the office of a PE/VC-funded IT start-up run by a 30-something entrepreneur. The ambience is not accidental either. As GSTN Chairman Navin Kumar had told Business Standard a year ago, “The idea is to create an entity that is under the strategic control of the government but will have the flexibility of the private sector.”
As if to highlight the difference, a racy blue, red and green logo, created by the National Institute of Design, adorns a banner at the airy reception area and the visiting cards and stationary. These are only the outward signs of the solid, if low-profile, progress the organisation has made to get the IT infrastructure ready for when this long-delayed tax becomes a reality. A world away from the din of political rhetoric over rates, the shape of the law, minimum applicable thresholds and, most recently, the prospect of a 1 per cent inter-state tax, GSTN has made some robust progress.
Government has given GSTN Rs 320 crore for funding companies to purchase hardware needed for the system and are going to give some more money.”
Asked about the government’s initiative to connect products and SME customers with start-ups to GST platform, Prakash Kumar [CEO] said a few start-up companies have already begun to approach the government and suggest innovative ideas of developing applications to help them connect their products and SME customers to GST platform.
“A couple of start-ups came to me, and one of them I met was zapped by their innovation. Yes we need very innovative start-ups to add value to the GST platform. We need at least 10 to 12 such applications developed by start-ups,” headed
It was the speech of Budget, 2010-11 when the then Finance Minister – Shri Pranab Mukherjee announced the setting up of a “Technical Advisory Group for Unique Projects” (TAGUP). TAGUP was set up under the chairmanship of Shri Nandan Nilekani for taking up the technological and system related issues in respect of five projects including GST. It was the report of TAGUP submitted in January, 2011 which suggested that the task of handling the IT related issues in respect of these five projects should be handed over to a class of institutions called “National Information Utilities” (NIU). It was also suggested that the NIU will be the reporting authority to government and it will further contract to vendors in market for specialized IT related services.
Later on, in July, 2010; Shri Pranab Mukherjee with the assent of EC set up an Empowered Group on IT Infrastructure for GST (EG-IT) which was also headed by Shri Nandan Nilekani. It was dedicated group which was entrusted the job to look into technological needs for implementing GST. It is worth mentioning here that TAGUP was responsible for making recommendations in respect of five projects already identified at the time of announcing budget, 2010-11 while EG-IT was responsible to work upon GST network only.
Based on the reports of these two groups, it was decided that:-
  • NIU for GSTN should be incorporated as a non-government, not for profit (section 25), Private Limited Company registered under the Companies Act, 1956.
  • Government’s share in equity should be 49%; being 24.5% of Centre and 24.5% of State.
  • Total private ownership should be 51%.
  • No single private entity should hold more than 10% of equity.
Thus, basically, the GSTN is to be in the hands of private sector with 51% of shares.
 Objectives of GSTN
GSTN has been set-up with the following objectives to act as a pass through interface for dealers.
  • Integration of the common GST Portal with the existing tax administration systems of the Central/State governments and other stakeholders.
  • Provide common PAN based registration, enable returns filing and payment processing for all states on a shared platform.
  • Facilitation, implementation and set standards for providing services to the taxpayer through common GST portal State Governments and other stake holders;
  • Build efficient and convenient interfaces between with tax payers to increase tax compliance;
  • Carry out research, study best practices and provide training to the stakeholders
The select committee of Parliament [RajyaSabha]  has suggested “The GSTN is the comprehensive back end infrastructure network for the management of tax data and reporting of the GST. The Committee noted that the Non-Government shareholding in GSTN is dominated by private banks, and this is not desirable. It recommended that the Non-Government Institutional shareholding be limited to public sector banks and financial institutions.”
The objections raised by the Committee are quite obvious and they simply cannot be ignored in the light of the fact that GSTN would be a database of almost every significant transaction being carried out in the economy. GSTN’s work is of strategic importance to the country and the firm would be a repository of a lot of sensitive data on business entities across the country.
Main Concerns
Everything relating to GSTN was not so agitating until it was revealed that 51% of the shareholding of GSTN would lie in the hands of private sector. The privatization of GSTN is more threatening as GSTN would be a storehouse of a large amount of critical information. Thus, a majority private shareholding of such company means the critical information of about 6 million taxpayers is in the hands of private players. GSTN has been incorporated as a not-for- profit Section 25 Company. It is a well-known fact that private sector works only for profit. It is quite unusual for a private sector entity to invest for public welfare. This very fact induces a serious question as to why is private sector investing in a not-for-profit Company? Certainly, some kinds of incentives or interests must be associated with the investment. And when it is clearly evident that no monetary benefit is going to emerge out of it, it would not be wrong to assume the presence some bigger non-monetary incentives. Or rather, it can be said that the availability of such critical data relating to the taxpayers itself is the biggest advantage associated with it. This threat alone is the major cause of concerns of people arguing against the privatization of GSTN. Going by the above arguments, it can be safely opined that such critical information relating to taxpayers must not be given in the hands of such private entities.
The taxation system of any country is always considered to be the safest when it is under control of the state. Handing over the control of such sensitive data in the hands of the private sector is itself the biggest threat to the economy. How shall the government ensure the economic security of nation if such data is misused by the private entities to get benefit out of it?
At this stage, it must be noted that concerns had been raised even by the CBEC regarding ownership and security of such sensitive and confidential data in the dominion of private sector owned GSTN but it was later decided not to question the decision of the empowered committee. This concern was not considered before proceeding with the registration of GSTN, ignoring the fact that CBEC is the most important stakeholder in this transitive tax revolution. What induces more questions is that GSTN, being a private company, shall be out of the ambit of CAG. Considering the above arguments, it would not be wrong to question the security and confidentiality of the critical taxpayers’ database.
What could be the possible reasons behind private equity in GSTN? Is it indicating towards the government’s inability to efficiently manage the biggest tax revolution of the nation? Is the government trying to shed off its responsibilities? Why does the government want to keep GSTN out of the ambit of CAG?
The current proposed structure of GSTN is based upon the recommendations of TAGUP and EG-IT which had given their reports after a number of rounds of discussions.
Empowered Committee (EC) has suggested that concerns regarding the data security should be addressed by incorporating related provisions in the Articles of Association of the company entrusted with GSTN. EC has also clarified that the Chairman of GSTN would be appointed by Government. Also, as stated earlier, no single private entity will own more than 10% of equity while Centre and State will own 24.5% equity each. Thus, ultimate control will vest with government anyways. Further, a monitoring committee headed by Revenue Secretary was also proposed to be constituted to review the working of GSTN.
EC also stated that the GSTN will be bound to follow the internationally accepted security and safety measures of protecting the data leakage. Also, it was proposed to appoint a Chief Information Security officer on deputation by Government to look into the matters related to information security. EC also clarified that the audits of GSTN would be conducted by the independent auditors, including the professional personnel designated for carrying out technology reviews and giving suggestions thereupon.
The above stated justifications were given by EC in respect of information protection mechanism while finalizing the model of GSTN. However, these are the least discussed in the relevant fora.
Some may argue that since Passport system is done by TCS and Income Tax is assisted by Infosys and data mining for SEBI done by TCS—what is wrong if GSTN is in private hands. There is a lot of difference between projects /outsourced activities undertaken by private companies and entire departments run by privately owned entities.
From that point of view the concerns of Dr Swamy seems justified.
BJP leader Subramanian Swamy on Thursday urged Prime Minister Narendra Modi to bring full Government control in the company called GSTN, formed by UPA Government with 51 percentage private participation to manage the administration of Goods and Services Tax (GST). In a letter to Modi, the BJP leader said it was not advisable to bring private firms in the administration of tax-related matters.
Goods and Services Tax Network (GSTN) was formed as a Section 25 company in March 2013 with Centre and States having 49 per cent. Rest 51 per cent of shares were controlled by private banks and National Stock Exchanges’ subsidiary company. Ten percent of shares each were held by HDFC Bank, ICICI Bank, HDFC Ltd and NSE Strategic Investment Corporation. Eleven percent shares are held by LIC Housing Finance Limited, where Bank of Muscat and Abu Dhabi Investment Corporation also have shares, said Swamy.
“Being a Section 25 company, GSTN is a not-for-profit organisation. Then why private profit making entities have any stake, and that too majority stake in it? What is in it for them? Implementing GST scheme requires Constitutional Amendments and then only the GST administration and tax Management Company would be by GSTN. All the data management for computation of tax share, will be by GSTN,” said Swamy arguing that the programming work and electronic management should be handled by Government itself.
“Tax administration is a matter that deals with sensitive private information. Being such a large shareholder, this automatically means that HDFC and ICICI will be the bankers of public money collected through taxes,” he said, citing a recent transfer of `4,000 crore by GSTN to develop software.
It might be worthwhile to put together a policy/guideline paper on appropriate vs inappropriate engagement with government projects or initiatives including the rules for conflict of interest. Right now, very few seem to know where the actual lines are. So it ends up being a free for all.
If I recall correctly Sam Pitroda during his tenure at Cdot/telecom etc. staffed hordes of companies with relatives and then collected government contracts. Similar is the case with large number of World Bank assigned projects with Finance Ministry—which are contracted by small companies floated by parties having insider knowledge. But the average person has no idea where the lines were crossed and where they weren’t. Short of a getting a law degree oneself, I can’t even see how the average person is supposed to know where the lines are.
I think it would be a huge social service to tell the nation a-priori what the lines are as opposed to retrospectively establishing them by precedent or worse a letter of indulgence from a higher power.
It is unfortunate that no discussion is taking place about this GSTN and it would be most appropriate if the Finance Ministry comes out with clarifications and also make GSTN a government company which can be audited by CAG.
This sums up mechanisms to avoid conflicts of interest as well as sacrificing interests of the State for the benefit of few.
Views Personal




•        Load factor at 75% up 7ppts•        Passengers Carried up 27% YoY•        Revenue up 35% YoY
•        EBITDAR up 109% YoY
•        Operating Profit up >100% YoY
•        Net Profit up by >100% YoY•        RASK up 15% YoY•        CASK down 2% YoY
•        Average Base Fare up 34% YoY

SEPANG, 23 AUGUST 2016 – AirAsia X Berhad (“AAX” or “the Company”), the long-haul low-cost airline affiliate of AirAsia Group, today reported its financial results for the Second Quarter (“2Q16”) ended 30 June 2016.
The Company recorded its first second quarter profit since inception, boosted by strong revenue growth of 35% year-on-year (“YoY”) to RM883.2 million on the back of 71% YoY increase in scheduled flights revenue, due to stronger demand as the quarter ended with a 75% load factor, up 7 percentage points YoY. This was despite Available Seat Kilometer (“ASK”) surging 17% YoY to 6,682 million from 5,693 million in the same period last year following increased frequencies on high-traffic routes.
During the quarter under review, Revenue per Available Seat Kilometer (“RASK”) was up 15% YoY from 11.51 sen to 13.24 sen while average base fare similarly saw a significant growth of 34% YoY to RM526. This was mainly due to higher contributions from China and North Asia markets, which grew 50% YoY and 38% YoY respectively. Cost per Available Seat Kilometer (“CASK”) decreased 2% YoY to 13.20 sen. The decrease in CASK was due to the Company benefiting from the lower fuel prices, which averaged US$59 per barrel compared to US$72 per barrel during the same period last year. However, this was slightly offset by five additional A330 operating lease aircraft with higher rental rates in comparison with 2Q15.
AAX posted an operating profit of RM 20.0 million while Net Profit after Tax (PAT) stood at RM1.0 million, as compared to losses of RM132.9 million in the same period last year. This was mainly due to better average base fare and load factor improvement seen across all core routes, especially China.
AirAsia X Group CEO Datuk Kamarudin Meranun said, “While the second quarter has historically been a lean quarter for us, we have managed to overcome all odds and record our first second quarter profit since inception.”
“We continue to see improvement across all segments. In 2Q16, Australia contributed the highest growth to Malaysia AirAsia X (“MAAX”) operations. Revenue from Australia increased 56% YoY on the back of higher passenger traffic while average base fare improved 15% YoY. Revenue from China also continued to improve and grew 47% YoY, while load factor improved 11ppts YoY to 82% and average base fare rose by 53% YoY. We believe this trend will remain for the remaining of the year as a result of the Malaysian Government initiative on visa waiver for Chinese travelling to Malaysia coupled with an increase in Fly-Thru traffic to our core markets with improved timing. The future for AAX Group will see us expanding to China and other core markets, in line with our strategy to build market dominance within the region.
“We took delivery of two aircraft, both under operating lease for our Malaysian operation to cater for our expanding network, bringing our total fleet to 30 as of August 2016. There will be no more deliveries until 2018.”
“Thailand AirAsia X (“TAAX”) recorded a strong 89% load factor, an increase of 17ppts YoY from 72% in the same period last year, where Bangkok-Shanghai was the best performing route. This was boosted by the increase in the number of international tourists to Thailand in 2Q16 by 8% YoY. Revenue was up 17% YoY and passengers carried rose 35% YoY, exceeding capacity growth of 3% YoY. This was despite the ICAO downgrade in December which prompted Japan and South Korea to put a freeze on additional flights by Thai-registered airlines.”
“Indonesia AirAsia X (“IAAX”) posted a net loss of USD8.9 million in 2Q16 from USD8.2 million in the same period last year. As Indonesia’s operational environment remains challenging, we will temporarily cease IAAX’s Australian routes in September with the aim of restarting service next year.”
“Our focus is to keep this positive momentum throughout the year but we remain cautious of things beyond our control such as currency volatility, regulatory uncertainty and other external headwinds that are expected to persist. Based on the current forward booking trend, the number of passengers to be carried in the third quarter looks encouraging. We are also happy to note that forward loads and average fares are also better than the previous year.”
Malaysia AirAsia X CEO Benyamin Ismail added, “Despite the second quarter being the weakest quarter for us historically, we have made a significant statement by recording a profit. It is a very good quarter indeed for the Company.
“We have benefited from the low fuel environment and hedged all our remaining requirements for this year based on planned existing routes, which has certainly allowed us to better manage cost while exploring new strategic routes. As a result, we trimmed CASK by 2%, however, the weakening of Ringgit prevented further cost reductions as most of our costs are denominated in USD.”
“Revenue improved 35% YoY to RM883.2 million for the second quarter, as scheduled flights revenue surged 71% YoY. The healthy demand for our award-winning Premium Flatbed product pushed up premium cabin load factor to 69% while revenue soared to RM42 million, an increase of 50% YoY. Ancillary Revenue increased by 31% YoY to RM136.9 million, and we foresee this number growing even further with the launch new ancillary products such as our exclusive Premium Lounge opening in September 2016, inflight entertainment on flights to all markets and not just Australia and the availability of new insurance products that protect both our guests and their gadgets while travelling abroad. We foresee these new products further contributing to Ancillary as we continue to pursue our 10% growth target.
On the balance sheet, Benyamin highlighted, “As mentioned before, the management monitors the Company’s net gearing level closely to ensure that it is always at a healthy and comfortable level. At the end of 2Q16, the Company’s USD denominated borrowings was reduced by 5% from USD296 million in 1Q16 to USD281 million in 2Q16 due to the quarterly repayment of borrowings on our finance lease aircraft. Cash increased by 17% to RM282.2 million at the end of quarter in review. The Company’s balance sheet continues to strengthen with net gearing reduced to 0.90 times as at June 2016 from 1.20 times three months ago as a result of lower total debt and increase in cash.”

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