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Another changing climate

Another changing climate
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First Published: Fri, Jan 01 2010. 01 15 AM IST

Updated: Fri, Jan 01 2010. 12 20 PM IST
New Delhi: In early 2009, Rohini Aggarawal left her job at PriceWaterhouseCoopers Pvt. Ltd to start her own company, named ARX Bizness Advisors Llp and bearing the still-novel suffix of “Llp”, short for “limited liability partnership”. The Llp structure got statutory recognition from the ministry of corporate affairs (MCA) last year; Aggarawal’s firm, she says, was only the 36th such company to be registered.
Llp involves exactly what its name entails, combining a company’s limited-liability benefits with a partnership’s flexibility. Consulting mostly on indirect tax, for instance, Aggarawal is responsible only for what she does; her partner, also a chartered accountant, bears responsibility for his own work.
“That’s the beauty,” she says. “A partner is liable only for his or her wrongdoing, unlike in the case of a partnership firm, where the firm is responsible.” Aggarawal cites the example of Satyam Computer Services Ltd’s accounting fraud, in which Price Waterhouse Bangalore, a partnership firm, was probed by the Central Bureau of Investigation.
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Designed to make it easier for chartered accountants, lawyers and venture capitalists to set up companies, Llp is a new option for Indian entrepreneurs. “So far, more than 420 Llps have registered,” says a senior official at MCA, wishing to remain anonymous. “We hope to see many more registering in 2010.”
The spread of Llp will be only one of the myriad ways in which businesses will find the ground shifting beneath their feet in 2010. Enter stage, for example, the goods and services tax (GST) and the direct tax code. Enter also, on the corporate law front, the Companies Bill and the Competition Act.
Finally, aiming for an April 2011 deadline, Indian companies will also begin converging their books of accounts with the international financial reporting standards (IFRS). But Jamil Khatri, an executive director of KPMG in India, is sceptical about Indian industry’s preparedness for this change. “Even while the Institute of Chartered Accountants of India has started an 80-hour course for chartered accountants, corporate India will take time to comply with IFRS,” Khatri says.
For its part, the government, says Salman Khursheed, Union minister for corporate affairs, is moving very fast. “Whether it is the Companies Bill or the Competition Act,” he says, “the idea is to facilitate corporates doing business in a hassle-free atmosphere, but with stronger self-regulation, so that frauds...can be avoided.”
The Companies Bill proposes that certified valuers—such as chartered accountants, company secretaries or cost accountants—should value the assets, properties, tangibles and intangibles of companies before they go in for mergers and acquisitions or initial public offerings.
This Bill will trigger substantial changes in the way business is conducted. “As always happens, it will be a mixed bag,” says Ketan Dalal, executive director of PriceWaterhouseCoopers India. “On the positive front, there are several provisions that simplify mergers and acquisitions, including facilitating of cross-border mergers. But...there are provisions relating to registered valuers which can complicate matters, such as the pricing of preferential issues requiring such valuation, in spite of existing Securities and Exchange Board of India guidelines.”
Dalal readily provides another example of the Bill’s mixed-bag nature. Some clauses allow directors to videoconference into meetings and managers to earn more liberal remuneration; others restrict fund-raising options such as raising company deposits.
The implementation date for GST, once touted as April 2010, may be pushed to October or even to 2011, as state governments battle to modify its details or avoid it altogether. Finance minister Pranab Mukherjee conceded in December that the original deadline wouldn’t be met.
“There were differences of opinions, but states have already converged on the basic structure as reflected in the draft agreement," Asim Dasgupta, chairman of the empowered committee of state finance ministers, says guardedly. “I won’t say anything now about when we would be achieving it. The target date for introduction will be discussed in the first part of January. I’ll have to sit with (Union finance minister) Pranab Mukherjee before making an announcement.”
Once implemented, GST’s impact is expected to be largely positive. “Multiple taxation and multiple rates of taxation will go, and companies will not be forced to plan their business in a way that helps them avoid multiple taxation,” says Pratik Jain, executive director of the indirect tax practice at KPMG India. “If a commodity is manufactured in Delhi and sold in Mumbai, the company has to pay taxes at one level in Delhi and at another level in Mumbai. As a result, companies are opening warehouses in Mumbai, from which they sell in Mumbai.” Setting off input costs can become easier; exports can become more competitive.
Not every architecture of regulation will smoothly slip into action. The fate of the Companies Bill will be determined by how promptly the parliamentary standing committee submits its evaluation of the Bill.
The shadow of the direct tax code also looms over 2010, but a finance ministry official admits that it may not materialize early this year. The code, which proposes a dramatic renovation of the country’s 48-year-old tax law and includes significant tax rate cuts for individuals and companies, is yet to be cleared by the cabinet—which would then turn it into a Bill for debate in Parliament.
The Competition Act has been implemented in fits and starts; important norms relating to mergers and acquisitions have yet to be notified by the government. “But we are already investigating nine cases of cartelization and abuse of dominance, which suggests the commission is active,” says an official at the Competition Commission of India, who did not want to be identified. “All we need to do is to hire more staff, and that is happening.”
Graphics by Jayachandran/Mint
Romita Datta from Kolkata contributed to this story.
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First Published: Fri, Jan 01 2010. 01 15 AM IST