EMPLOYEES PROVIDENT FUND (EPF) RATES FOR 2012
Three EPF rates and a dilemma awaiting finance minister Pranab Mukherjee Finance minister Pranab Mukherjee will have a tough task on his han...
https://iskablogs.blogspot.com/2011/12/employees-provident-fund-epf-rates-for.html
Three EPF rates and a dilemma awaiting finance minister Pranab Mukherjee
Finance minister Pranab Mukherjee will have a tough task on his hands when the three different recommendations for this year's employees' provident fund (EPF) rate reach his desk. The PF office has few reliable numbers about its liabilities or income.That will make it difficult for the finance minister to choose between the three recommended EPF rates of 8.25%, 8.5% and 9.5%.
With crucial state polls on the horizon, Mukherjee will not want to be the bearer of bad news to 6.16 crore workers about a rate cut in the EPF when bank deposits are delivering close to 10% returns.
The Comptroller and Auditor General of India is yet to clear the PF office's accounts, forcing its board to skip the deadline for presenting its accounts to Parliament for the first time in 60 years. The CAG's draft report bluntly says that EPFO's book-keeping systems violate accounting standards and do not conform with the format specified by the government.
That the PF office has failed to meet the commitments it made to the finance ministry over last year's EPF rate decision, won't help. Mukherjee's ministry had questioned the veracity of EPF accounts when the PF office 'discovered' a surplus of 1,733 crore and recommended a 9.5% PF rate.
The finance ministry agreed to the 9.5% rate on the condition that the PF office update all member accounts within six months and ensure there is no shortfall in income. On both counts, the EPFO has failed to deliver.
Nearly 4.85 crore accounts were still to be updated on November 22, as per EPFO's submissions to its board's finance committee last week. More damning is the admission that it had made a huge 5.7% error in its income estimates for 2010-11 that led to an eventual income shortfall of 854 crore. Given that it now manages a corpus of 4,66,000 crore, an error of this magnitude is alarming. With interest payments promised at 9.5%, the PF office ended up with a 510 crore deficit on its 2010-11 operations - which it will now be forced to fund from its income for 2011-12.
This accounting fiasco may have forced EPFO to recommend a 1.25% cut in the EPF rate so that it doesn't end up with more contingent liabilities. But there are other pressure points it will find hard to explain when the finance minister reviews its state of affairs and the minutes of the EPFO board's finance committee. EPFO officials had hoped to boost income for 2011-12 with a decision to stop interest credits from April 2011 on old inoperative accounts, where no fresh contributions have come for three years or more. They had hoped to use the savings from these accounts to fund a higher EPF rate for the year.
But now the PF office is neither aware of how much money remains in such inoperative accounts, nor is it clear if the decision to cease interest payments is lawful.
"The amendment regarding not giving interest on inoperative accounts may be subject to judicial scrutiny which may have an adverse effect on liability," officials told their board's finance committee, explaining why interest savings on such accounts cannot be ascertained or used to pay other employees.
The panel was also informed that there are about 125,000 firms whose accounts have never been updated since the date they were brought under the EPF net. Accounts of another 43,000 firms haven't been migrated to the current accounting system of the EPFO. Together, they add up to 25.4% of the 6.6 lakh firms under the EPFO. The interest liabilities that remain to be credited to these accounts, the EPFO cannot assess.
Courtesy:ET
Finance minister Pranab Mukherjee will have a tough task on his hands when the three different recommendations for this year's employees' provident fund (EPF) rate reach his desk. The PF office has few reliable numbers about its liabilities or income.That will make it difficult for the finance minister to choose between the three recommended EPF rates of 8.25%, 8.5% and 9.5%.
With crucial state polls on the horizon, Mukherjee will not want to be the bearer of bad news to 6.16 crore workers about a rate cut in the EPF when bank deposits are delivering close to 10% returns.
The Comptroller and Auditor General of India is yet to clear the PF office's accounts, forcing its board to skip the deadline for presenting its accounts to Parliament for the first time in 60 years. The CAG's draft report bluntly says that EPFO's book-keeping systems violate accounting standards and do not conform with the format specified by the government.
That the PF office has failed to meet the commitments it made to the finance ministry over last year's EPF rate decision, won't help. Mukherjee's ministry had questioned the veracity of EPF accounts when the PF office 'discovered' a surplus of 1,733 crore and recommended a 9.5% PF rate.
The finance ministry agreed to the 9.5% rate on the condition that the PF office update all member accounts within six months and ensure there is no shortfall in income. On both counts, the EPFO has failed to deliver.
Nearly 4.85 crore accounts were still to be updated on November 22, as per EPFO's submissions to its board's finance committee last week. More damning is the admission that it had made a huge 5.7% error in its income estimates for 2010-11 that led to an eventual income shortfall of 854 crore. Given that it now manages a corpus of 4,66,000 crore, an error of this magnitude is alarming. With interest payments promised at 9.5%, the PF office ended up with a 510 crore deficit on its 2010-11 operations - which it will now be forced to fund from its income for 2011-12.
This accounting fiasco may have forced EPFO to recommend a 1.25% cut in the EPF rate so that it doesn't end up with more contingent liabilities. But there are other pressure points it will find hard to explain when the finance minister reviews its state of affairs and the minutes of the EPFO board's finance committee. EPFO officials had hoped to boost income for 2011-12 with a decision to stop interest credits from April 2011 on old inoperative accounts, where no fresh contributions have come for three years or more. They had hoped to use the savings from these accounts to fund a higher EPF rate for the year.
But now the PF office is neither aware of how much money remains in such inoperative accounts, nor is it clear if the decision to cease interest payments is lawful.
"The amendment regarding not giving interest on inoperative accounts may be subject to judicial scrutiny which may have an adverse effect on liability," officials told their board's finance committee, explaining why interest savings on such accounts cannot be ascertained or used to pay other employees.
The panel was also informed that there are about 125,000 firms whose accounts have never been updated since the date they were brought under the EPF net. Accounts of another 43,000 firms haven't been migrated to the current accounting system of the EPFO. Together, they add up to 25.4% of the 6.6 lakh firms under the EPFO. The interest liabilities that remain to be credited to these accounts, the EPFO cannot assess.
Courtesy:ET
