Taxman may not free Nokia’s accounts

NEW DELHI: India’s tax authorities are mulling whether to appeal against a Delhi High Court order to de-freeze the bank accounts of Nokia in a ₹2,000 crore tax dispute with the government.

Last Thursday, the Delhi High Court ordered India’s tax authorities to unfreeze bank accounts of the company, yet Nokia’s fixed assets remain frozen.

“Fixed assets such as buildings will remain frozen,” said an official from the income tax department. The official added that the department has not yet decided whether they will appeal against the Delhi High Court order about unfreezing bank accounts of the company.

Nokia insisted its business transactions have been transparent and it is working closely with tax authorities. “Last week, the Delhi High Court ruled in Nokia’s favour in a case where the Indian tax authorities froze some of Nokia’s assets for potential claims that hadn’t even been raised against the company yet… contrary to speculations, Nokia has sufficient assets in India to meet its tax obligations...,” Nokia said in a statement.

The Delhi High Court had restrained Nokia from selling or transferring its ownership rights in India relating to movable and immovable assets. The court had also asked the handset firm to inform the assessing officer two days in advance before repatriating any money abroad.

Nokia is among a string of multinationals to have become embroiled in tax disputes in India, including Cadbury, Royal Dutch Shell and Vodafone.

This year on March 21, the tax department issued a ₹2,000 crore demand notice to Nokia, for which the company got a stay order from the Delhi High Court. Analysts cautioned that a longdraw out stoppage can eventually reverse the incipient recovery in India’s exports as shipment orders from the US remain on hold.

The resultant fall in exporters’ earnings can potentially weaken the rupee further and upset plans to contain the CAD at 3.7% of GDP or $70 billion from the record 4.8% of GDP or $88 billion hit last year.

It stood at 4.9% of GDP or $21.8 billion during April-june this year. The gap, however, was expected to slim down in the coming quarters aided by a sharp slump in gold imports and a smart rebound in exports.

“If it (the shutdown in the US) continues for a few weeks, exports to US may take a $2-billion hit,” said Madan Sabnavis, chief economist, Care Rating.

“In the absence of the essential trade facilitation, buyers may put on hold new orders,” trade body Engineering Export Promotion Council (EEPC) said in a statement.

“The shutdown of the US government will certainly hit Indian exports because of crippling of the trade facilities at ports and airports,” said Rana Kapoor, president, Assocham.

The government, however, played down the probability of a major impact of US shutdown on the Indian economy.

“We hope the impasse will be resolved so that there is no spillover to the global economy. As of today, I don’t see any major impact on the Indian economy on that account,” Arvind Mayaram, economic affairs secretary, said on Tuesday.

At $36 billion, US accounts for 12% of India’s total merchandise exports. India’s IT companies earned $40.5 billion by exporting software services to the US — 58% of their total global exports-- although a majority of it was from private clients.

“A majority of the business that our industry has is with the private sector, and is not directly dependent on federal spending. Hence we do not see an immediate economic impact,” said industry body Nasscom. “If, however, the shutdown continues for an extended period, there will be an overall macroeconomic impact that may affect the industry. Some services such as visa processing time that depend on federal budgets are expected to see delays.”

“There is no short-term impact. But a prolonged shutdown can upset the economic recovery, which is a matter of concern,” said Ganesh Natarajan, vice-chairman and CEO, Zensar Technologies. “Increase in input costs and the depreciating rupee have not helped,” said Shah. “The industry is definitely in need of a trigger in terms of a stimulus to boost consumer sentiments leading to a turnaround.”

Perhaps the big surprise was Hyundai, whose recentlylaunched Grand i10 was expected to give a fillip to sales: the company’s sales dipped by a marginal 0.8% over 2012.

“In the current market scenario, volume growth is a big challenge. We have received phenomenal response (for the Grand),” said Rakesh Srivastava, senior vice president, sales and marketing, HMIL. “We expect the market challenges to continue and have a cautious optimism for upcoming festive season.”

Only Honda and Ford ducked the trend with 88% and 37% growth respectively, thanks to their new models Amaze and Ecosport.

There was some cheer in the two-wheeler segment though, with all major manufacturers posting healthy growth. Hero Motocorp registered a near 16% growth last year, its first monthly double-digit increase since May 2012, while rival Honda posted a 35% increase. Bentley is hoping to sell nearly 50 cars in India this year. The increase in duties on imported cars in 2012 and earlier this year has surprised the company.

However it is hopeful that its first ever sports utility vehicle to be launched in 2016 will find many takers in India, which contributes less than 1% to its 10,000 units annual sales.