West Bengal finance minister and Chairman of the Empowered Committee of State Finance Ministers on value-added tax (VAT), Ashim Dasgupta, spoke to BT's Arnab Mitra about the new levy. Excerpts:

Why is VAT being introduced?

Currently, you pay sales tax (ST) on inputs at every stage of the production process. From stage two onwards, the sales tax is calculated on a base of the input price plus the sales tax already paid. This results in a cascading effect that pushes up the tax burden and, hence, prices. VAT, on the other hand, taxes only the incidence of value-addition at each stage by granting rebates on taxes already paid.

Will VAT increase revenues?

About 130 countries have introduced VAT so far and all of them, without exception, saw a growth in revenues. In India, Haryana introduced VAT last year, and its revenues grew about 30 per cent. So empirical evidence suggests that revenues will rise.

How will it check evasion?

VAT has an inherent self-policing mechanism, wherein the benefits are available only if the tax on each stage is paid and proper documentation maintained. Since the entire chain of transactions is inter-connected, it becomes practically impossible for one or more links in the chain to evade taxes. Besides, the government will cross-reference income tax, excise and VAT payment records in a tightly-interlocked grid that will immediately show up any evasion attempts.

SEBI Orders Set Aside By SAT

In the past year (2004) alone, the securities Appellate Tribunal (SAT) set aside 22 orders issued by India's stock-market watchdog, the Securities and Exchange Board of India (SEBI). Clearly, this is one case of SEBI proposes, SAT, ..... What follows is a sampling with the dates of the SAT ruling and the content of the original SEBI order.

January 12: Manyog Investments and its directors to dissociate themselves from the capital market for a period of five years.

July 8: R. Subramanian, Director, Viswapriya Financial Services & Securities Ltd., prohibited from accessing the capital market or dealing in securities for five years.

July 30: Imperial Corporate Finance, lead manager for Gammon India rights issue, pulled up for contravention of merchant banking regulations.

August 31: RIL pulled up for violating Regulation 7(1) of the Takeover Regulations, 1997, by not informing the target company (L&T) and the stock exchanges about its holding having once again crossed the threshold of 5 per cent on November 5, 2001.

October 15: Samir Arora, former Chief Investment Officer of Alliance Capital Asset Management, charged with market manipulation and insider trading.

November 17: Delink Holding Mauritius penalised for violating Section 3(3) of the SEBI (SAST) Regulations, 1997. (In this case, SAT reduced the penalty from Rs 4,00,000 to Rs 20,000).

November 17: Contact Consultancy penalised for violation of the SEBI (SAST) Regulations, 1997, in terms of acquisition of shares of BSEL Information Systems Limited.

December 3: First Global barred from conducting business.

December 3: Cameo Corporate, registrar and share transfer agents, penalised for irregularities in Indian Overseas Bank public issue. (In this case, SAT reduced the penalty from Rs 7,00,000 to Rs 50,000).

December 13: Certificate of registration of Integrated Enterprises India, a depository participant, cancelled.

-Roshni Jayakar

The Fairest Of Them All
The I-bank league tables are out.

No one had any doubts that 2004 would be a bad year for investment banks. For starters, there were public issues, 34 of them, according to data available from Prime Database (see IPOs Over The Years), that raised over Rs 30,510 crore from the market. To put that number in context: the corresponding numbers for 2003 were 15 and Rs 2,193 crore; this was the best performance in any year in the Indian capital market, with the previous best being 1995 when 1,444 companies raised Rs 13,887 crore from the market; and it was almost equal to the Rs 32,000 crore that had been raised in the past nine years (1995 to 2003). The likes of TCS, Biocon, ONGC, NTPC and Patni made initial public offerings (IPOs) in the course of the year. Then, there were the M&A deals. With the economy booming, companies flush with funds (many registered their highest profits ever in 2004), set out to merge with or acquire other companies, in India and elsewhere.

The usual suspects, Kotak Investment Banking, JM Morgan Stanley and DSP Merrill Lynch dominated the equity issuance business, although the first edged out the other two on the basis of the number and the diversity of deals it was involved in. The surprise came in the M&A business where Citigroup, leveraging its commercial banking relationships, pipped traditional investment banks to the post. Among the 13 M&As it managed were landmark ones such as the Rs 1,393.40-crore acquisition by Flextronics of Hughes Software and the Rs 750-crore acquisition by IBM of Daksh eServices. And Ambit came in third with15 deals valued at Rs 2,339 crore. The good news for I-bankers: 2004 was good, but this year, 2005, promises to be even better.

-Roshni Jayakar