Amulti-tiered goods and services tax (GST) structure was decided by the GST council on Thursday. Arvind Subramanian, chief economic adviser at India’s finance ministry, comments on the development. Edited excerpts from an interview:
What are your initial reaction on the new GST tax slabs?
By moving it up to 28% many of the items today that are in any case effectively taxed at whatever 28-29-30% that will be retained but it will also that extra amount that one might get relative to what we have proposed will allow a lot of the goods that currently were proposed at 26% to come down to 18%. So, it is both keeping the tax about the same on the relatively high-end goods in the 26% category but also financing a kind of tax reduction for many items consumed as the finance minister said by lower and middle class people.
There are lots of items oil, toothpaste, furniture, refrigerators, lots of consumer items. So, it actually allows the middle class and lower middle class to benefit from that.
Also the finance minister had indicated on that broadly that possibly even the small cars may move to the 28% band, we know that the committee of secretaries will be deciding the item wise but this is an important segment on the auto market, any thoughts on that?
We have decided in principle on the structure and broadly on what kinds of goods will go where but the exact allotment will now be determined by the group of committee of secretaries.
It is amply clarified that things like aerated soft drinks, tobacco products, your luxury cars other big luxury items, probably some of the white goods, the consumer durables as you have indicated will move to the 18% band but the rest of it will be at the 28% band and only some of these products will have a cess implication.
Exactly, yes, but in all those things the current incidence will be maintained broadly and there will be no increase in incidence on that. So, that is the decision.
On the cess front also the way that you will do it is basically to match the current tax incidence whatever is the differential will be the cess? So, it will be different as per the different commodities in the 28% plus bracket.
But remember those cesses are only on four commodities. So, the differential will apply only to four commodities that today are taxed at those high rates which is aerated beverages, luxury cars, tobacco and then of course the clean energy cess as well. So, cesses on five—but in case of the clean energy it is not part of the 28%, that is a separate thing. The additional cess is on four items.
Just to reiterate, this would be tobacco, aerated soft drinks, luxury cars and pan masala?
Yes.
So, this basically really takes of the inflationary impact because common consumers have really a lot to benefit because in essence your tax rates are coming down so how are you saying the rate structures are more or less revenue neutral?
It is revenue neutral but of course they are going to be efficiency gains which could finance some of the revenue. So, to that extent it is going to reduce de facto in a reduced incidence from the consumer absolutely relative to today.
But there is a possibility of some kind of revenue gap in the first year of GST rollout, any thoughts on that, how we plan to gear up on that or not really much of a concern?
At this stage, it is not a concern.
Most of the services will be at the 18% rate. Some of the other essential services probably could be at the lower rate. Anything on that because that is where the common consumer will really get hit?
As the FM said that will be decided by the committee of secretaries.
And no 40% rate at all?
Yeah, no 40% rate.
Strides Shasun said on Thursday that Mylan Inc. has agreed to settle regulatory and general claims related to the sale of the Indian company’s Agila Specialities division. Strides sold Agila to Mylan for as much as $1.75 billion in December 2013.
Arun Kumar, executive vice chairman and managing director of Strides Shasun, comments on the development. Edited excerpts from an interview:
Sonia: Can you tell us what exactly the settlement looks like and what kind of payment will you receive?
When we sold Agila to Mylan there were several escrows related to regulatory and other contingent liabilities and tax. So, there was a little overhang on the regulatory considering that the regulatory issues were taking a little time and that is now being satisfactorily resolved and Mylan and Strides agreed for a settlement.
We had guided, when the deal was done, that we would spend approximately $60 million but we ended up settling at $70 million. So, we still get $30 million immediately as a settlement on the regulatory escrows.
However, they will also release all general claims. We do have another tax escrow which is only due in 2017 so that is another matter to address at that time.
Latha: You are getting $30 million out of $100 million, the other $100 million remains?
That is right.
Sonia: Just wanted to ask you little bit about what the second half of the year will look like because the stock has been running up quite a bit on the comments that came in from the management regarding the guidance in the second half. In the first half you did an Ebitda of almost Rs300 crore, what are we looking towards in the second half and what could lead to that?
We guided the market for an Ebitda range of Rs440-475 crore which is almost 50% greater than our H1 performance. This is predominantly to do with several of our inorganic strategies now working out well as the synergies are falling into place.
We were probably about a quarter or two delayed in that but that is behind us. We were confident of giving the stronger guidance as a consequence.
Anuj: A newspaper report indicates you have plans to list your biotech business, Stelis Biopharma; any thoughts on that?
It is a board approved proposal that we list Stelis biotech arm separately. It is a process which will take between seven months and eight months. However, we will kick-start the process in this quarter.
Latha: How long might it take?
It is a court process so it should take about eight to nine months.
Latha: Just wanted to ask a little bit on the second half Ebitda guidance, you are giving raw material or rather active pharmaceutical ingredient (API) of the Renvela drug. Can you tell us whether the supplies have begun and how strong can the earnings from that be, who are the people you are supplying to?
We cannot give product guidance but I can confirm— we believe that we are one of the few API suppliers to a group of generic approvals that we expect and we have started manufacturing and will commence supplies in this quarter for several of these partners.