In­dian Govt may ask banks for $295m in back-taxes

The Pak Banker - - BUSINESS -

The In­dian govern­ment plans to is­sue de­mands for back-taxes amount­ing to a to­tal of at least Rs20 bil­lion ($295 mil­lion) from about a dozen banks as part of a govern­ment in­ves­ti­ga­tion into ser­vices levies, ac­cord­ing to two of­fi­cials with di­rect knowl­edge of the mat­ter.

The govern­ment will is­sue or­ders for pay­ment as early as April, the of­fi­cials said, ask­ing not to be iden­ti­fied be­cause the in­for­ma­tion isn't pub­lic. The to­tal amount of tax de­mands may reach more than Rs100 bil­lion through 2016 as the govern­ment probe widens to in­clude all of In­dia's roughly 100 lenders, the of­fi­cials said.

Au­thor­i­ties are de­mand­ing that In­dia's banks pay taxes on ser­vices they claim were ren­dered to cus­tomers who main­tained ac­counts above min­i­mum bal­ances, which qual­i­fied them for perks like un­lim­ited trans­ac­tions with­out fees, free ATM cash with­drawals and com­pli­men­tary debit cards, the of­fi­cials said. The govern­ment is cal­cu­lat­ing the amount owed based on the rates that banks charged cus­tomers who didn't main­tain such min­i­mum bal­ances for sim­i­lar ser­vices over the past three years, the of­fi­cials said.

The govern­ment says banks are li­able for the tax be­cause they im­pose fines or hid­den costs on cus­tomers who fail to main­tain a min­i­mum bal­ance, and there­fore don't suf­fer any losses, ac­cord­ing to the of­fi­cials. In state­ments to Bloomberg on Mon­day, sev­eral banks named by of­fi­cials re­jected any no­tion that they were evad­ing ser­vice taxes and said they were fully com­pli­ant with In­dia's reg­u­la­tions.

The tax de­mands af­fect the en­tire in­dus­try, and banks will prob­a­bly join to­gether to chal­lenge them in court, ac­cord­ing to two ex­ec­u­tives in the sec­tor, who asked not to be iden­ti­fied be­cause they were not au­tho­rized to speak to the me­dia. The no­tices will be back­dated to 2012, when In­dia made it manda­tory to tax al­most all ser­vices, and the govern­ment ex­pects to re­cover all the dues by the end of March 2017, the of­fi­cials said. Banks can dis­pute the charges, but would have to im­me­di­ately make pro­vi­sions on their books.

Apart from the tax amounts al­legedly owed, the banks will also be charged 30 per­cent in­ter­est and a penalty of 15 per­cent, the of­fi­cials said. If they fail to make the pay­ments within a month of re­ceiv­ing the no­tice, the penalty could rise to as high as 100 per­cent, they said.

ICICI Bank Ltd. and HDFC Bank Ltd. will be asked to pay Rs5 bil­lion ru­pees, the of­fi­cials said. Ko­tak Mahin­dra Bank Ltd., Axis Bank Ltd., Yes Bank Ltd., Cit­i­group Inc., Deutsche Bank AG, and HSBC Hold­ings Plc will also re­ceive de­mands, the of­fi­cials said.

Ko­tak Mahin­dra Bank is com­ply­ing with re­quests for in­for­ma­tion from ser­vice-tax au­thor­i­ties, spokesman Ro­hit Rao said in an e-mail. He called it a "rou­tine mat­ter" and said au­thor­i­ties have made no in­ves­ti­ga­tion or al­le­ga­tion of ser­vice- tax eva­sion against the bank.

Yes Bank said it has ro­bust poli­cies to en­sure com­pli­ance with all reg­u­la­tory guide­lines. "There is no in­ves­ti­ga­tion and there is no eva­sion of any form," it said in a state­ment to Bloomberg.

Axis Bank pays the govern­ment on "all tax­able ser­vices pro­vided by the bank, in­clud­ing charges col­lected in re­spect of non-main­te­nance of av­er­age bal­ance," Axis Bank spokesper­son Sherin Antony in an e-mail. "The bank is fully com­pli­ant with the ap­pli­ca­ble ser­vice-tax leg­is­la­tion. There is no in­ves­ti­ga­tion by the tax au­thor­i­ties in this re­gard." Fi­nance Min­istry spokesman D.S. Malik de­clined to com­ment when reached by phone. Deutsche Bank spokesman Li­nus Chet­tiar, Citibank spokesman De­ba­sis Ghosh and ICICI Bank spokesman Kausik Datta also de­clined to com­ment.

E-mails to HSBC and HDFC Bank weren't im­me­di­ately an­swered. Mo­han V Tanksale, chief ex­ec­u­tive of­fi­cer of the In­dian Banks' As­so­ci­a­tion, didn't im­me­di­ately an­swer three calls to his mo­bile phone. Prime Min­is­ter Naren­dra Modi is look­ing for rev­enue to nar­row one of Asia's widest bud­get deficits. The de­mands on banks would be a fresh blow to a sec­tor al­ready sad­dled with bad loans and would risk reignit­ing con­cerns about In­dia's scat­ter­shot tax regime, which has led to dis­putes with Voda­fone Group Plc, Nokia OYJ and Cad­bury choco­late maker Mon­delez In­ter­na­tional Inc.

Since tak­ing of­fice, Modi's govern­ment has pledged to avoid bring­ing new cases un­der a 2012 law that gives the govern­ment power to tax retroac­tively-even though it has stopped short of re­peal­ing it. It also said it was open to a set­tle­ment with Voda­fone on a $2 bil­lion tax dis­pute that is head­ing for ar­bi­tra­tion. The 10mem­ber S&P BSE Bankex In­dex has lost 10% this year, com­pared with the al­most 5 per­cent drop in the bench­mark S&P BSE Sen­sex In­dex. ICICI Bank, In­dia's largest pri­vate sec­tor len­der by as­sets, has fallen 17% in that time.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.