A Quarterly Newsletter from the UAE and Oman member firms of the PKF International Ltd. network

VOL 16, Issue 3 July 2014

Offshore Update

UPDATES FROM THE OFFSHORE WORLD

World Free Zones Organisation (WFZO)

WFZO is a new non-profit entity operating as an association for all free zones around the world, which aims to transform the way in which many economies around the world operate.

The global launch and unveiling of WFZO took place in Dubai under the patronage of His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of UAE and Ruler of Dubai.

WFZO has been established in Geneva, Switzerland, but is headquartered in the Dubai Airport Free Zone, Dubai, UAE with the following prime objectives:

  • To provide global leadership in terms of knowledge of free zones, and enhance public and general knowledge and perception of free zones; and
  • To provide a range of services for its members and the community, as well as help to increase awareness of the advantages of free zones in terms of economic and social development, and foreign and direct investment.

WFZO, which is open to all member nations of the United Nations, comprises representatives of established free zones as well as local, regional and international free zone associations from across the world. The board of directors, announced during a recent press conference, include Dr. Mohammed Alzarooni (UAE) as Chairperson, Mr. Luis Pellerano (Dominican Republic) as Vice Chairperson, Mr. P.C. Nambiar (India) as Secretary and Ms. Rose Hynes (Ireland) as Treasurer.

According to Dr. Alzarooni, “World FZO will promote a spirit of collaboration, dialogue and guidance. It will provide help to nations that can benefit from the free zone model; whose economies require foreign direct investment in order to build strong, robust and diverse economies for the future. The creation of such an organization would not be possible without the inspired leadership and vision of His Highness Sheikh Mohammed Bin Rashid Al Maktoum. It is his vision that led us to establish the first ever multilateral organisation grown out of Dubai. The UAE has been a shining example of the dynamic role free zones play in economic and social development and its diversity and vibrancy as a business hub has put the country on the world map. World FZO will further enhance the development of free zones in other parts of the world. With its headquarters here, Dubai and the UAE, are positioning themselves as a major player in the world economy in the run up to Expo 2020.”

The WFZO will allow special economic zones to discuss issues and learn from each other. It aims to protect the interests of free zones, promote higher global standards in zone practices, and implement industry standardization. As part of its human development charter, the WFZO aims to set ethical business standards by attempting to eliminate both slavery and cheap labor from special economic zones. It will also conduct in-depth market analysis in order to assist free zones in becoming more efficient. Moreover, the WFZO will hold annual conventions and lobby governments and international multilateral organizations in order to promote the economic and social advantages of free zones.

There are currently approximately 3,500 free zones across the world, with around 96,000 firms operating within them.

(This article is compiled by Mr. Sadiqali Bhojani, Manager, Offshore and Free Zone Services)

 

Highlights of Indian Union Budget 2014

Change just for the sake of change can only result in chaos, particularly in a diverse nation like India. Sometimes however, change is inevitable and helps usher in a new energetic era. As a part of the Indian diaspora, each one of us has been eyeing the winds of change in India. From the beginning of 2014 they have blowing a fair bit in the right direction. Sometimes at the unrealistic speed that people have been expecting like the huge mandate given to the Narendra Modi led alliance in the Lok Sabha elections and at other times, more subtly as in the case of the first union budget presented by the new government.

The new PM, Mr. Narendra Modi’s mandate of “Sabka Saath Sabka Vikas” is touted as a model of Collective Efforts Inclusive Growth. This philosophy has a vision for the all-round development at its core. The new NDA government’s first budget can be called one of subtle changes and seems to be nudging towards fulfilling the five principles enshrined in the aforementioned Panchamrut philosophy of growth through Knowledge, Water, Energy, Security and Human Resources.

Some of the highlights of the 2014 Indian Union Budget, which should lay down the roadmap for Indian’s future are listed below:

Economic Indicators

  • Decline in fiscal deficit from 5.7% in 2011-12 to 4.5% in 2013-14 mainly achieved by reduction in expenditure rather than by way of realization of higher revenue.
  • Improvement in current account deficit from 4.7 % in 2012-13 to year-end level of 1.7% mainly achieved through restriction on non-essential import and slow-down in overall aggregate demand. Need to keep watch on CAD (Current Account Deficit).
  • 4.1 per cent fiscal deficit a daunting task in the backdrop of two years of low GDP growth, static industrial growth, moderate increase in indirect taxes, subsidy burden and not so encouraging tax buoyancy.

Administrative measures

  • A stable and predictable taxation regime which will be investor friendly and spur growth.
  • Resident taxpayers can obtain Advance Ruling in respect of their income-tax liability above a defined threshold.
  • The Authority for Advanced Ruling (AAR) to be strengthened by constituting additional benches.
  • The scope of Settlement Commission to be enlarged so that taxpayers can approach the commission for settlement of disputes.
  • The government to set-up a High Level Committee to interact with trade and industry on a regular basis to ascertain areas requiring clarity in tax laws.
  • Several taxpayer friendly changes are being proposed to transfer pricing regulations.
  • Direct Tax Code (DTC) is to be reviewed in its present shape.

Foreign Direct Investment

  • The composite cap of FDI in defense manufacturing and insurance sectors is to be raised from 26 % to 49 % with full Indian management and control through FIPB approval route.
  • To encourage development of smart cities, in connection with FDI in the construction development sector, the condition for built up area reduced from 50,000 square metres to 20,000 square metres and minimum capitalization norms reduced from USD10 million to USD5 million, with three years lock-in. Projects which commit at least 30 per cent of total project cost for low cost affordable housing to be exempted from the built-up and capitalisation conditions but subject to three years lock-in. The vision to develop 100 smart cities, by modernizing existing mid-size cities, has been unveiled through earmarking of INR 70.60 billion for the initiative.
  • Manufacturing units with FDI that are under the automatic route allowed to sell their products through retail, including e-commerce platforms, without any additional approval.

Other Economic Measures

  • The facility of Electronic Travel Authorisation (e-Visa) to identified countries to be introduced in a phased manner at nine airports.
  • SEZ scheme to be revived in order to turn it into an effective instrument of industrial production, economic growth, export promotion and employment generation. SEZs to be developed in Kandla and JNPT (Jawaharlal Nehru Port, also known as Nhava Sheva, is the largest container port in India, located south of Mumbai in Maharashtra).
  • Consultation to be completed on the enactment of the Indian Financial Code, and on the reports of the Financial Sector Legislative Reforms Commission.
  • Indian companies to adopt of the new Indian Accounting Standards in line with IFRS, Indian companies from the financial year 2015-16 voluntarily and from the financial year 2016-17 on a mandatory basis.
  • RBI will create a framework for licensing small banks and other differentiated banks. The government in close consultation with the RBI to put in place a modern monetary policy framework.
  • Proposal to revamp ADR/GDR and IDR regimes and introduction of a more liberal Bharat Depository Receipt to be introduced.
  • Several other focus areas and sectors emphasised e.g. slum development as part of CSR activities, emphasis on ship building industry, mining sector, insurance amendment bill, bank finance to infrastructure sector, women and child focused programmes, SCs/STs targeted programmes, etc.
  • 24X7 customs clearance facility extended to 13 more airports in respect of all export goods and to 14 more sea ports in respect of specified import and export goods to facilitate cargo clearance.
  • ‘Indian Customs Single Window Project’ to facilitate trade, is to be implemented.
  • GST introduction to be given thrust including approval of the Legislative Scheme.

Direct tax measures

  • Specific proposal with respect to tax pass through status for real estate investment trusts (REITs) and Infrastructure Investor Funds is also expected to galvanise such entities and spur the realty sector.
  • Personal Income-tax exemption limit raised by INR 50,000, i.e, from INR 200,000 to INR 250,000 for individual taxpayers, below the age of 60 years. Exemption limit raised from INR 250,000 to INR 300,000 for senior citizens.
  • Deduction limit on account of interest on loan in respect of self occupied house property raised from INR 150,000 to INR 200,000.
  • Maximum deduction allowable towards prescribed tax saving investments (e.g. life insurance premium, provident fund contributions, etc.) increased from INR 100,000 to INR 150,000.
  • 10 year tax holiday extended to the undertakings which begin generation, distribution and transmission of power by 31st March 2017.

Non resident taxation

  • The benefit of concessional rate of withholding tax@5% extended to borrowings by way of issue of any long-term bond, and not restricted only to long-term infrastructure bonds. Further, the period for which the benefit is available to be extended by two years i.e. borrowings made before 1st July, 2017.
  • Benefit of concessional rate of 15% on dividend received by Indian companies from specified foreign companies to be extended without limitation to a particular assessment year;
  • “Roll Back mechanism” to be provided in the APA (Advanced Pricing Agreement) scheme upto a period not exceeding 4 previous years preceding the first previous year for which the APA applies .
  • Income arising from transfer of security by a Foreign Portfolio Investors to be in the nature of capital gains.
  • Reduced rate of withholding tax at 5 per cent would apply on interest paid by an Indian company to non-resident taxpayers on monies borrowed by it in foreign currency from a source outside India:
    – under a loan agreement or by way of issue of long term infrastructure bond up to 30 June 2017 or
    – by way of issue of any long term bond between 1 October 2014 to 30 June 2017.
  • Transfer of government security, carrying a periodic payment of interest, by a non-resident to another non-resident and made outside India through an intermediary dealing in settlement of securities not to be regarded as transfer and accordingly not liable to capital gains tax.

Indirect tax measures

  • Colour picture tubes exempted from basic customs duty to make cathode ray TVs cheaper and more affordable to weaker sections.
  • Concessional basic customs duty of 5 percent extended to machinery and equipment required for setting up of a project for solar energy production.
  • Concessional basic customs duty of 5 percent on machinery and equipment required for setting up of compressed biogas plants (Bio-CNG).
  • Duty on ship breaking scrap and melting scrap of iron or steel rationalized by reducing the basic customs duty on ships imported for breaking up from 5 percent to 2.5 percent.
  • To prevent misuse and avoid assessment disputes, basic customs duty on semi- processed, half cut or broken diamonds, cut and polished diamonds and coloured gemstones rationalized at 2.5 percent.
  • To incentivize expansion of processing capacity, reduction in excise duty on specified food processing and packaging machinery from 10 percent to 6 percent.
  • To encourage exports, pre-forms of precious and semi-precious stones exempted from basic customs duty.
  • Duty free entitlement for import of trimmings, embellishments and other specified items increased from 3 percent to 5 percent of the value of their export, for readymade garments.
  • To give an impetus to the stainless steel industry, increase in basic customs duty on imported flat-rolled products of stainless steel from 5 percent to 7.5 percent.
  • For passenger facilitation, free baggage allowance increased from INR 35,000 to INR 45,000.
  • Specific rates of excise duty increased on cigrettes in the range of 11 per cent to 72 per cent.
  • Excise duty increased from 12 percent to 16 percent on pan masala, from 50 percent to 55 percent on unmanufactured tobacco and from 60 percent to 70 percent on gutkha and chewing tobacco.
  • Levy of an additional duty of excise at 5 percent on aerated waters containing added sugar.
  • To broaden the tax base in Service Tax, sale of space or time for advertisements in broadcast media, extended to cover such sales on other segments like online and mobile advertising. Sale of space for advertisements in print media however would remain excluded from service tax. Service provided by radio-taxis brought under service tax.
  • Provision of services rules to be amended and tax incidence to be reduced on transport of goods through coastal vessels to promote Indian Shipping industry.
  • Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India to be taken out of the tax net and Cenvat credit for services of rent-a-cab and tour operators to be allowed to promote tourism.

How and when these and more pragmatic economic proposals are finally implemented and put into action, will determine whether the winds of change that have begun to blow over India can carry away the economic malaise and stagnation that had taken root over the past couple of decades and had all but derailed the progress of the Super fast Indian Express.
By Chaitanya G Kirtikar, Offshore and Freezone Department