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CBTD PANEL RECOMMENDS 14 TAX ACCOUNTING STANDARDS TAS(Tax accounting standards), the name of the standards , will have

a significant impact on computation of income chargeable to tax.The Finance Ministry on Friday(26/10/2012) released the final report of the committee for public comments. Stakeholders can send in their suggestions and comments on the final report by November 26 to the CBDT. In its final report, the Committee recommended that the accounting standards notified under the income tax law should be made applicable only to the computation of taxable income.It has also suggested that a taxpayer would not be required to maintain books of account on the basis of accounting standards notified under the income tax law.In the case of conflict between the provisions of the Income-tax law and the TAS, the provisions of the Income-tax law shall prevail to that extent, the committee confirmed. The Committee examined all the 31 Accounting Standards issued by the CA Institute and recommended notification of tax accounting standards on 14 issues under the income tax law.The committee also formulated drafts of tax accounting standards on these 14 issues.The Central Board of Direct Taxes (CBDT) had in December 2010 set up this committee to study the harmonisation of accounting standards issued by the CA Institute with the direct tax laws in India.It was also tasked to recommend accounting standards which needed to be adopted u/s 145(2) of the income tax law.The committee had in August 2011 given initial recommendations. The final report was submitted in August 2012.In October 2011, two draft tax accounting standards one on construction contracts and the other on Government grants were issued by the tax department for public comments.Currently, only two standards relating to disclosure of accounting policies and disclosure of prior period and extraordinary items have been notified by the Tax Department. Notable changes: TAS recommends notional losses will not be allowed to be deducted from income for the tax purposes, a norm which is different from accounting standards. Accounting standard (AS 1) allows recognition of expected losses. However, the same standard does not recognise anticipated profits.Now the CBDT committee said that since accounting standard amounts to differential treatment for recognition of income and losses, the tax accounting norms will not recognise expected losses or mark-to-market losses. Accounting standard (AS-11) says that forward exchange or similar contracts be mark-tomarket at each balance sheet date and the resultant exchange differences should be recorded in profit or loss.Since such mark-to-market gains or losses are unrealised in nature, the CBDT committee recommended that tax accounting standards should recognise all gains or losses on such contracts only on settlement. TAS will also deal with securities held as stock-in-trade for tax purposes, which is not recognized by accounting standard (AS-13).Securities held as stock-in-trade draws higher tax at the rate of 30 per cent, against 15 per cent long term capital gains tax on listed securities held as investment.TAS has recognized this to give greater clarity.

Analysis: Pros: The proposed standards are aimed at bringing down discretion currently available with taxpayers under the standards prescribed by the Institute of Chartered Accountants of India (ICAI). The tax accounting standards are expected to bring certainty in treatment of various items. The standards affect sectors such as real estate, construction, and treatment of contracts, government grants, foreign exchange treatment, securities, leases, intangible assets ,borrowing costs and for share-based payments to avoid tax litigations.

Cons: Even as the panel, appointed by the Central Board of Direct Taxes (CBDT), mooted that the assessees need not keep two books of accounts-- one for accounting standards and another for proposed TAS -- complying with new standards will be a cumbersome process for the companies, particularly smaller ones,in the initial years.While the stated objectives of the Committee are to provide more certainty and less chances of litigation, the TAS are likely to increase the tax burden due to a shift away from the concept of prudent or conservative outlook in accounting, The panel seeks to pre-pone the income side items, on the other it seeks to post-pone or not allow expenses as compared to traditional accounting standards currently used. Currently, accounting standard does not allow for any valuation of inventories for service provider. However, the CBDT panel recommended that the method of valuation of inventories of a service provider based on the international best practices be incorporated in the TAS. There will be a number of tax adjustments and workings which will need to be carried out by taxpayers to comply with new TAS though there is only one book to be maintained.For example,inventory valuation for tax maybe completely different and have to be re-done, similarly workings for foreign exchange gains and losses and many more. These will also need to be audited by the tax auditor before returns are filed. The smaller tax payers will need to understand the impact and comply with two sets of accounting standards- those under Income Tax Act and the ones under Companies Act, formulated by the Institute of Chartered Accountants (ICAI).

SIEMENS PLANS TO EXIT SOLAR BUSINESS German manufacturer Siemens has announced that it is to sell its solar business activities as part of a reorganization of its energy division and is already in talks with a number of potential buyers. As part of the restructuring, Siemens will discontinue its Solar & Hydro division. The divestment of the solar business activities will enable Siemens to focus its renewable energy activities only on wind and hydro power. Siemens placed its bet largely on solar-thermal technology, which unlike solar panels, uses the sun's rays to heat water in large-scale projects, turning it into steam to power electricity-producing generators. The solar business's annual revenue of less than 300 million ($391 million) was just a tiny fraction of the company's 73.5 billion in total revenue last fiscal year, yet Siemens anticipated that the market for solar-thermal power plantsalso known as concentrated-solar power plants would grow at a double-digit pace over the next decade, especially around the Mediterranean and other sunny regions. The divestment is in line with Siemens new company-wide programme which was announced on October 11. Under the programme, Siemens will focus on five areas, namely cost reduction; go-tomarket; simplified governance; optimized infrastructure and strengthen core activities. The aim of the newly launched programme is to enable Siemens to meet its own ambitious goals and to underscore the targets defined in the One Siemens framework.

Reasons: First reason for the divestment which falls under the strengthen core activities category of its new programme include lower growth and strong price pressure in the solar markets. As a result, the companys expectations for its solar energy activities have not been met. The global market for concentrated solar power has shrunk from four gigawatts to slightly more than one gigawatt today. The solar and hydro division generated revenue in the low triple-digit millions in the last fiscal year . Lack of support from the government and policies. Austerity measures in former growth markets such as Spain, Italy and elsewhere in Europe, as well as cutbacks to solar-thermal projects in other regions, have taken a toll. The capacity glut in the global solar-panel market had affected the solar-thermal prices . Renewable energy remains an important focus area for any energy generation company. The energy from renewable sources will account for 28% of the global power mix in 2030. According to its estimates, global power consumption will rise from 22,100 TWh to 37,100 TWh in 2030. Thereby company gives importance to hydro power and wind energy that will contribute the largest share of energy from renewable sources rather than investing in solar generation activities. Specialized companies dealing with solar power generation will be able to maximize its strength from other diversified companies. Siemens also intends to sell the divisions photovoltaic activities and is in talks with several parties who are interested in purchasing these activities. However, the company would continue to offer products for solar thermal and photovoltaic power plants, such as steam turbines, generators, grid technology and control systems, which are produced outside of the Solar & Hydro Division. Siemens will continue to operate the two business units Solar Thermal Energy and Photovoltaic until they are sold. DIGITISATION DEADLINE EXTENDED TO NOVEMBER 1st 2012 The government has delayed digitization because it discovered that almost 90 lakhs of the cable operators are not ready to make the switch, reports inform. Set- top boxes, essential for digitization, have not been installed. The Ministry of Information and Broadcasting said that their installation have not picked up the necessary pace. While the ministry has been reluctant in extending the deadline, reports have been coming in from all quarters that most cable operators have not made got the set top boxes. In such a situation, if the deadline had been adhered to, all cable subscribers who do not have set top boxes would lose their connection and there would have been a huge blackout. Moreover, cable operators have been rallying against the switchover, saying that the time is inadequate. Many of them have also expressed their apprehension that the switchover would lead to increased expenditure and a reduction in profits. They have also complained that the supply of set top boxes is not sufficient. Television broadcasters and channel owners are disappointed with the move, because the switchover would mean less leakage and transparency in the revenue system. They have been advertising regularly on all channels, telling customers of the impending date.

Analysis:

Future plan:

Currently,taking into account DTH, the percentage of digitization has gone up to 90 per cent. Metro-wise progress shows Mumbai has nearly achieved 100 per cent digitization. Delhi has achieved 83 per cent digitization of Cable Homes and with DTH, the percentage of digitization is 88 per cent.In Kolkata, Cable homes have reached 80 per cent digitization and with DTH, the percentage of digitization goes up to 82 per cent. In Chennai, the Cable homes are showing 61 per cent digitization and together with DTH, the percentage of digitization goes up to 85 per cent. Advantages: Digitisation of the cable network will hugely benefit the broadcasting industry as there will be a tracking mechanism. Consumers will have enhanced viewing pleasure as an optical fibre cable can easily carry more than 400 channels. With digitization, viewers will benefit in terms of choice and quality. They will be able to choose and pay for channels they want. It also promises transparency in subscription and a lower carriage fees for broadcasters . The current hybrid system allows only about 300 channels, the new system can allow about 800 to 1,500 channels by freeing up spectrum on the cable lines. The new system will also allow cable operators to provide on-demand services such as videos, songs, downloads and movies, and compete better with DTH. Analogue cable system cannot carry more than 90-100 channels, while there are more than 600 channels available. There is no mechanism in place to track how many homes watch pay channels, thereby paving the way for under- declaration of subscription collected by local cable operators the last-mile operators in the cable value chain. Lot of logistical inabilities and execution delays are the primary reason for the delay. Of the 94 million cable homes, a large chunk (about 88 million) is still analogue, while a meagre six million homes are watching TV through set-top boxes (that receive and decode digital TV signals). The digitization calls for investments upward of Rs.15,000 crore and almost all of this will flow out of the country, as set-top boxes and head-end equipment [need to decrypt and encrypt digital TV signals from satellites] are to be imported.Even if STBs are given free of cost to customers, it will take four months to import them, test-run them, and deliver it to 40 lakh customers in Chennai(for example) . The bigger challenge is to convince people to buy a set-top box (costing Rs.1,500), and pay more to watch pay channels. Analogue TV homes are, on an average, paying Rs.100 a month. Once digitised, they may have to shell out at least 50 per cent more. Of the total 40 lakh consumers in Chennai, about 25 lakh are middle and lower class family, the lowermiddle class would not be able to afford STBs On the industry side, increased transparency will result in accurate reporting of subscriber base and revenue. This will curb misreporting of statistics by operators and will lead to better profitability for broadcasters. All stakeholders, starting with the end consumer, distribution platforms, broadcasters, content providers and government stand to benefit as digitization will bring in transparency, improved quality of service and fair play

Disadvantages of analogue system:

Challenges faced by the industry:

Analysis:

Timely implementation of digitization is very desirable and the benefits would accrue to all stakeholders along the value chain. Consumers will enjoy better quality,tremendous variety in content and subscription revenues will see actual growth. Digitization is being successfully implemented in international markets in Europe and in Asia like Japan and South Korea and we are positive about the road ahead for India.The government to not delay the already announced sunset date and any delay at this stage can derail the entire process. DTH players believe that when the consumer is asked to buy the Rs 1000 set-top-box, they have a chance to win him over to their platform. A new DTH connection too costs only Rs 1,000. For example "Dish TV has geared up the upcoming digitization task. With the new TV commercial focussing on consumer awareness campaign, Dish TV has equally expanded the dealer network and also strengthened the current dealer base. The services are being upgraded with getting the technological talent pool and Customer Support Centre. While cable TV reception so far has been patchy, because of frequent disconnections and poor signal, digitization may force cable networks to upgrade their infrastructure. DTH players may be rejoicing too soon. The primary reason for switching over to DTH so far has been to ensure predictable quality in TV reception. Digitization is also likely to bring down cable set top box prices from about Rs 2,000 to about Rs 1,000-1,500. Some cable networks may even choose to give away the boxes free of cost to customers who pay in advance for a year, as is being done in some areas in the cities already. As of now, channels pay large sums of money to cable networks to ensure that their channels are carried in their 'basic package' to all the networks' subscribers. After digitization, consumers are likely to 'turn off' channels they don't wish to see, to cut their monthly bills. However, this will also affect the position of cable networks, as they won't have the ability to ensure that a particular channel will be delivered to all its subscribers. According to TRAI rules, consumers can pick any channel that they want to see and cable operators will have to oblige. The only condition is that cable operators can demand that the minimum monthly bill for the customer has to be Rs 150. In other words, even if all the channels that you have subscribed to (including pay channels) cost only Rs 140, you will still have to pay Rs 150 per month. To keep consumers interested in the 'bouquet system', Operators can introduce new bouquet packs which have specific channels to choose for different price categories above the fixed monthly payment.

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