Saturday, November 17, 2007

Happy Diwali- Law street in The Economic Times (November 2007)


Dear Readers,
Belated diwali greetings. This festive season, prompted Zenobia Aunty to pick her next theme. ET decided to carry it earlier, ie: on Nov 27, instead of the last friday of the month as always, which would have been Nov 30. Also they did not provide a link below my name, anyway, this apart, hope you enjoy this "cracker of an article". As always for the link click here.
The article is also copied and pasted below from ET's online edition.
Cracker of an ESOP notification
Lubna Kably, November 27, 2007
Ziiiing, screeched the rocket launched from the terrace by kids who live next door. Suffice to say, Spot squealed and dived into the bed covers, closely followed by Zenobia Aunty who raved and ranted how kids these days were devils in disguise. Both of them hate noisy firecrackers.
The festive spirit was truly missing in our house. Gopal, the techie, whom readers may recall from his occasional mention in earlier columns, came around with a box of sweets and a big smile on his face. His visit was cut short and his smile soon evaporated as Spot decided to pee on his new shoes and Zenobia Aunty refused to listen to his tax woes. After all, with her ears plugged up with cotton and her head wrapped in a thick muffler, one can’t really blame her for not listening. She did, however; devour the home-made sweets with great gusto. Thank you, Gopal.
While he sat on a comfortable bean ban, Gopal whined and groaned, not from a stomach ache but at the thought of having to stomach tax when he exercised his stock options, later on this financial year. Given Zenobia Aunty’s uncharacteristic behaviour of not wanting to listen to tax issues, this columnist was forced to listen to his tax grievances. Gopal lamented about the imposition of FBT on ESOPs. Here is why. Gopal works for a listed Indian company. Had Gopal exercised the options prior to April this year and sold the shares, all he would have to do is cough up a paltry securities transaction tax on sale. There would have been no capital gains tax incidence (if the shares were held by him for a year, post allotment) and he would have been a richer man. Now, when he exercises the options and shares are allotted to him, fringe benefit tax liability will be triggered in the hands of his employer company. Further, as the government has permitted recovery of the FBT liability from his employer, his employer intends to do so. Gopal is in a pickle.
However, instead of sympathising all that Aunty did was glare at him; tell him to be thankful for still being employed and not getting a pink slip. Yes, she was probably referring to the fact that many companies owing to a weakening dollar are cutting down costs and even retrenching employees. Funny, isn’t it? When growing up, this columnist used to hear complaints on how weak the rupee is. Now she hears complaints on how strong the rupee is. Well, human nature is such, that it is never satisfied. Spot, on the other hand, looked quite satisfied after having eaten a huge piece of Mysore Pak and yes having happily ruined a pair of brand new shoes.
Perhaps even PC (the finance minister and not your personal computer!) finds it difficult to please everyone. He may have pleased India Inc by permitting it to recover FBT from the employee, arising on allotment of shares, under ESOP plans. However, he has left others, like Gopal truly upset. Having recovered from the noise and pollution, post Diwali, Zenobia Aunty, was back to her normal talkative and curious self. Well, she is talking to all the neighbours and attempting to talk to Gopal, who now pretends to ignore her. Maybe, on reading this column, he may soften up and bring around another plate of home-made Mysore Pak and also forgive Spot for his misdeeds.
After having pointed out Gopal’s predicament which is worse off than earlier - remember earlier he paid no tax on ESOPs, if the capital gains were free and only a small and paltry STT was paid by him, Zenobia Aunty is now looking at the larger picture. She is now asking why the concept of issuing draft CBDT circulars for inviting comments was abolished. In the past, the CBDT has issued draft circulars, such as before issuing final guidelines on deciphering whether an activity is an investment or trading activity. Is it because these draft circulars result in public hysteria in the media? Of course, it is hard to swallow criticism, but at least draft circulars enable the CBDT to realise the drawbacks of a particular piece of legislation. Even if there is a hue and cry in the media and various opinions are aired, such opinions help the CBDT to clarify things and clear the air.
A senior bureaucrat politely pointed out to her that the MoF cannot afford to waste time by issuing drafts for everything. Point well taken, but this exercise definitely helps bring to light issues that companies are now grappling with, whether it be valuation of unlisted shares and the fear that this would lead to litigation or otherwise. Perhaps, the MoF could just reach out to a few well known chambers of commerce, professional institutions and elicit their views on a draft circular or notification. This sharing of knowledge will not harm anyone and would lead to better acceptance of tax policies. This newspaper firmly believes that Knowledge is Power. Zenobia Aunty, quips, sharing of knowledge means double the power.

1 comment:

samrina said...

Happy Diwali to you too :)