New Delhi: Amidst an impending increase in the mergers and acquisitions in the post-COVID-19 era, the ASSOCHAM has approached the Finance Minister Mrs Nirmala Sitharaman with a plea to streamline the M&As on the principle of ‘One Nation, One Stamp Duty’.
In a representation to the Finance Minister, the Chamber has said that” it is proposed that “ONE NATION, ONE STAMP DUTY” is brought in to ease M&A transactions.
Comprehensively listing the issues, including the high cost of taxation at the level of states as also the compliance of the Income Tax procedures, the ASSOCHAM has sought better coordination between different wings of the government and regulators.
It pointed out to a situation where an M&A transaction is subjected to stamp duty separately in two different states since the deal has an inter-state nature.
“Is it not unfair that the Transferee Company is required to pay Stamp Duty twice on the transfer of assets and liabilities…? Even the basic principles of law specify that one cannot be stamped or taxed twice for transfer of asset once,” the representation stated.
Commenting on the state of play in Corporate India, ASSOCHAM Secretary General Mr Deepak Sood said,” Given the level of stress on the balance sheets, especially in the post – Covid 19 era, consolidation is expected across different sectors of the industries. Several of the promoters, reeling under the economic impact of the pandemic, may put businesses on the block; whereas those with deep pockets would sense valuation opportunities. Thus, a rise in the number of M&As is expected, and the process should be facilitated”.
He said friendly M&As are the appropriate solutions, far better than the entities being pushed into the Insolvency and Bankruptcy Code (IBC). “Even in the best of times, the change of ownership, inter-group amalgamations should be facilitated for better efficiency and enhancing shareholders’ value,” Mr Sood said.
The ASSOCHAM’s letter to the Finance Minister stated that in case of amalgamation of a wholly-owned subsidiary and Holding company when there is no consideration, there should be nil stamp duty implication. However, certain states (e.g. Karnataka) considers the cross cancellation of shares upon amalgamation as consideration and levy duty.
The letter also dealt with the procedural issues faced concerning clearances from the market regulator, SEBI, stock exchanges and the tax authorities. Avoidable submission of papers is insisted by different regulators and authorities, even as the same had been given once.
As regards Income Tax, mandatory documents and clearances do not reach the NCLT benches within the timelines. In any case, given the workload with the NCLT, separate benches should be created for faster clearance of the M&As.
The SEBI circular about the minimum public shareholding should be tweaked to trust the promoters’ declaration that it would be brought down to 75 per cent. The present circular is quite rigid.