Deal Shell Companies & Export Subsidy Issue - Today Current Affairs Topics

How To Deal Shell Companies

Why in news?

Recently union government has initiated action against more than two lakh shell companies as part of Operation Clean Money.

What is operation clean money?

• Operation Clean Money was initiated by Income Tax Department (ITD).
• Initial phase of the operation involved-verification of large cash deposits made after demonetization.
• Second phase of the operation involves is identification of high risk persons for detailed investigations by the ITD.

What are shell companies?

• Shell companies are typically corporate entities which do not have any active business operations or significant assets in their possession.
• The government views them with suspicion as some of them could be used for money laundering, tax evasion and other illegal activities.
• Some laws helpin curbing illegal activities to target shell companies are

1. Benami Transaction (Prohibition) Amendment Act 2016
2. The Prevention of Money Laundering Act 2002
3. The Companies Act, 2013.

How can name of these companies be removed?

• Companies can be removed from the rolls of the Ministry of Corporate Affairs by two means either by strike off by Registrar of Companies (RoC) or by voluntary strike off.
• The strike off happens in case of companies which have failed to commence business within a year of incorporation.
• Voluntary closure can be done with the approval of the board and shareholders and the firm should have nil liabilities.

What is the difference between dormant and shell companies?

• A dormant company gets its title in three ways

1. If it has chosen to get a ‘dormant’ status from the RoC by way of an application.
2. If it is in compliance of the requirements of Section 455 of companies act 2013.
3. In case a company has not filed financial statements or annual returns for two financial years consecutively, the RoC shall issue notice and include it in the register of ‘dormant’ companies.

• But a shell company is one which is typically suspected of illegal activities.

What actions can be taken against shell companies?

• The RoC issues a show-cause notice to such companies and their directors seeking their response within 30 days.
• If the response is not satisfactory, the company’s name would be removed from the register.
• Then companies have to make an application before the National Company Law Tribunal for restoration which the NCLT will decide on a case-to-case basis.

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Export Subsidy Issue

What is the issue?

India's rising per capita income has created a problem for export subsidies.

What is the status India’s per capita income?

• Income per capita is a measure of the amount of money earned per person in a certain area.
• It can be calculated for a country by dividing the country's national income by its population.
• India’s per capita income is above $1000 formally qualifying it as a middle income country.

How India is responsible to WTO on this situation?

• According to WTO rules, now India is ineligible to provide direct export subsidies.
• Under WTO, production-based subsidies such as technological up gradation, capacity building and infrastructure development are permissible.
• Even for countries below the $1,000 per capita threshold, product-specific subsidies may be questioned if the export of the product concerned accounts for over 3.25% of the global exports for over two consecutive years.
• In that case, the country concerned will have to phase out subsidies over eight years.
• It can be reasonably expected that India will be dragged to the WTO for its subsidies regime.

What are the issues with Indian actions in this regard?

• India is recording consistent growth but centre failed to predict this issue.
• Instead, the Centre announced the Merchandise Export from India Scheme, providing a flat export benefit across 5,000 tariff lines at a cost of over Rs.22,000 crore.
• Meanwhile, explicit export subsidy schemes such as duty drawback (reimbursement of import duty on inputs) continue.

What actions should India take?

• India needs to plan according to the global trends and frame its policies.
• The commerce and industries ministry should push for a new regime of support to exports, one that is based on improving ease of doing business.
• The Government needs to reach out exporters struggling with GST and resolve their concerns while telling them that direct subsidies cannot be continued.

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Author : Shankar IAS Academy, Chennai.