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budget reaction

Neglecting the INDIAN MIDDLE-CLASS The budget 2009-2010 was a huge disappoint for the lower middle class and middle class population (aam - aadmi). Additional tax exemption of rs..1000 (net) was all it offered.  The BPL (Below Poverty Line) got most out of the 10, 00,000 crore+ government spending (only 15% of which reaches the public) . The removal of surcharge, CTT (rather than STT), increase in the exemption limit for wealth tax and reduction of duty on branded jewellery hardly carries any significance for the Indian Middle Class. Further, scrapping FBT has relieved the Company but has diverted the tax burden on the employees. Also the projected government borrowings will increase the cost of borrowing for the masses. No major announcement to control prices of Commodities Basket was seen. The Indian Middle Class got neglected on the whole.  Bharat.C.Jain  Coimbatore

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write up for Rly.budget.

Sir, I do hope u have not considered my my write up to flash in ur esteem news paper.  Anyhow I will be on action.   Thanks   Prof.PK.GHOSH Kerala.

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Re: Thanks for your inputs Re: Fwd: scholarship form

u wel cum budy and send in two days k u get 20000 scholarship on direct ur acnt by take care

On Fri, Jul 10, 2009 at 5:33 PM, Murali D <budgetwishlist2009@gmail.com> wrote:

Thanks for your inputs.
D. Murali
http://budgetwishlist2009.blogspot.com/

Fwd: scholarship form

---------- Forwarded message ----------
From: azhar beig <azhar.beig43@gmail.com>
Date: Fri, Jul 10, 2009 at 5:28 PM
Subject: scholarship form
To: imtiyazmb@gmail.com

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Post Budget Reaction for Information Technology Industry

Post Budget Reaction for Information Technology Industry

Writer: Mr. C R Vinay, Co-Founder, Chairman & Managing Director, Customer Centria

In the post recession period there has been a phenomenal change in the fortunes as well as the working styles of the different industries. The economic slowdown was like a jolt unexpectedly forcing the companies to do a serious introspection on their policies. With layoff notices, unpaid leave and 'on the bench' becoming the most commonly floating words around, the Indian workforce tasted recession, the worst import of the West. Not only were the industries forced to cut on costs, they were also asked to justify their spending and revenues and to add value to every expenditure they made.

One of the worst hit industries in the aftermath of recession was the IT industry of India. Once the blue-eyed industry of the west, especially US, the Indian IT companies were an instant hit due to their large talent pool of English speaking workers. After experiencing the dot com downfall, this is the second time the US is facing a decline of revenues in the IT sector. The recession this time might not be similar to the dot com bubble burst of the 90s but the impact is more or less the same. There are confirmed reports that IT budgets in a number of industries in the US and UK, have been nearly halved. After project cancellations and lay-offs, a number of Indian IT workers in the US were asked to leave. The situation has been aggravated further by southward movement in the billing rates, a longer payment period cycle and increased competition from other low cost destinations.

With a much more stable UPA back in its second innings, India's Industry was hopeful that this budget would rev up the industry and bring back its former glory. The IT/ITes industry that contributes around 6% to the national GDP has high expectations from the Union Budget 2009. The demands were few and fair.

• The demand of the industry was to extend the tax holiday by another decade as the growth is on a steep decline in the last one year due to recession globally. The recession and the lack of tax subsidy are resulting in businesses to layoff teams. There is a need for a stable policy regime for the IT hardware industry and for growth-oriented measures to boost domestic IT consumption. The STPI extension in this regard has come as huge relief to the IT sector. Even though the tax-holiday has been extended only for a year, it still will be able to give the recession hit industry support and stamina to revive itself.
• Tax analysts feel that even though the tax savings from this holiday might not be able to make up for the huge losses      these businesses have suffered globally, it still is going to be beneficial. Extension of the 10A/10B extension will surely provide a breather. This is particularly important for SMEs to facilitate their continued growth, which might not have the right resources to move into SEZs. This will also facilitate move into Tier 2 and 3 cities. The extension of this scheme is an important and necessary step to ensure continued growth for this sector.
• For the employees, abolition of fringe benefit tax (FBT) will make ESOPs (employee stock ownership plan) more attractive. Transfer pricing was a cause for concern. The IT industry has been one of the biggest contributors to the FBT tax, due to its high expenditure in terms of traveling, hospitality and ESOPs.
• There was also a much-required need for a new tax structure on the e-commerce businesses. The Information Technology Act, 2000, which is the first legislation to deal with electronic commerce, is silent on taxation. Substantial amount of state revenue, which is generated through direct and indirect taxes, is lost when Internet transactions remain untaxed. The removal of FBT for the industry and employees to emphasis on key e-governance projects has come as a major breakthrough for the sector of e- governance. It is heartening to see investment in key e-governance projects with an emphasis on important initiatives like unique ID programme. The excise duty exemption on packaged software is also a positive step.
• One of the main reasons behind the success of India's IT sector over the years has indeed been the tax holiday which has helped these firms plough back their earnings and fund their growth, especially given the fact that the banks have been loath to funding IT companies. Primarily, the sector had been asking the Finance Ministry to clear the mist around tax anomalies. This budget has helped cleared a lot of confusion on the multiplicity of taxes on packaged software.

Brief profile of Mr. C R Vinay

Co-Founder, Chairman & Managing Director

Vinay is an MBA in Marketing and Information systems from a premier institute in India with more than 13 years of experience in Advertising, Marketing and Technology. His vast global experience ranges from providing Marketing and Advertising consulting to leading companies in India to Analytical CRM and Analytical Marketing consulting to leading enterprises globally. His penchant for Customer Management coupled with his strong background of technology-driven Marketing focusing on driving a globally competent Customer Management company. He is driven by the belief that every enterprise needs to get Customer Centric in order to maximize all round value. 

Thanks and Regards.

Anindita Sharma
Account Executive
Aurous Communications & Events India Pvt.Ltd.
1st Floor, Kapadia Mansion, 142, Modi Street, Fort
Mumbai - 400 001

anindita.aurous@gmail.com

Mobile - +91-9730959859
Phone - 022 65256346
            022 65256328

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budget line

Dear Sir,                   This relates to the series of opinions published by you regarding budget expectations. This was a welcome move and needs appreciation.I request you to continue this in the years to come and also extend the same even for the State (Tamil Nadu ) Budget. But one thing I wish to point out. You had published only the opinions of top brass of a company or organisation and had ignored the views of professionals and common man; i.e., it seems that BL presumes that only those who hold higher positions in famous companies can make some ideas to the Govt. This I am saying because  you had called for a brief note about the background and photo. Tax reforms can be suggested only by Professionals and the irony is that they cannot disclose their qualification and cannot even  mention about their practise experience fearing punishment from their parnet bodies/ Institutes (treating the same as amounting to publicity).So they may refrain from disclosing their identity  and give only their name and opinion.Such is the position of law in this country for educated ones. Hence I request you to give credit to the value of the opinions and not to their background as to whether they are business magnets or not. Similarly a common can only give his expectations based on his day to day sufferings and he may not like her / his identity got published. I think the expectations should be a mixture of all these and not of industry people alone.Please treat the above as a suggestion and not criticism. Thanking you, N. NAGARAJAN.

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Post budget reactions from Shemaroo

Subject: Post budget reactions from Shemaroo

Please find attached post budget reactions from Mr Hiren Gada, Director, Shemaroo and his photograph.

 

Kindly publish.

 

Regards

 

Girija

 

Girija Balakrishnan

Sr. Manager

pr@pressmanindia.com  m: +91 9821736716

Pressman Advertising Limited, 505 Raheja Centre, Nariman Point, Mumbai 400021 t: +9122 22188880 f: +9122 22166741 w: www.pressmanindia.com, www.pressmanpr.com

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Attached the self reactions on Indian Railway Budget 2009-2010

Dear Editor,    Please find the attached self evaluation on Indian Railway Budget 2009-2010 here with. Looking forward to your kind perusal.   Prof. P.K GHOSH.

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attatched reader's reactions on Indian Railway Budget 2009-2010

Dear editor,            Please find the attatched self brief reactions on Railway budget 2009-2010 here with. Looking forward to your kind perusal in the next publication.                                                              Prof.P. K. Ghosh.   N/B. Brief  self profile also attatched.

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Thanks Re: Fwd: Budget Quote from Lovely Professional University

Thanks for your quick 'reactions'!

Warm regards
D. Murali
http://Budget2009Reactions.blogspot.com/

Soma's comments on Union Budget

 

Hi,

 

Please find below the comments from Mr. Ankineedu Maganti, CEO, Soma Enterprise Ltd on the Union Budget 2009-10. Would be grateful if you could carry the same in your esteemed publication.

 

According to Mr. Ankineedu Maganti, CEO, Soma Enterprise Ltd, "The move of the union government to enable IIFCL to refinance banks in infrastructure projects is a very positive step. In addition to the incremental funding available, banks will take comfort from this move, and be more aggressive in funding projects in various infrastructure sectors.

 

It would have been a further encouragement for banks to reinstate the income tax exemption provided to banks lending to infrastructure projects under Sec. 10 23G, as this would have reduced the cost of debt.

 

The announcement of increasing the allocation of funds to Highway, Rail and Urban infrastructure projects though is a positive step, the allocation could have been higher, especially for Highways.

 

Currently all infrastructure projects executed on PPP basis enjoy tax exemption under Sec 80 IA and pay MAT instead. The steep hike in MAT will impact these projects and reduce the viability. This is detrimental to the impetus the government is trying to give to PPP projects.

 

The clarification provided in exemption of Excise duty on goods manufactured at site for use in construction is a welcome relief. This had been a cause of tremendous debate over the past couple of years especially with urban projects depending heavily on pre-cast elements etc.

 

Similarly applicability of Service Tax on construction projects should also have been clarified. Currently, there is significant ambiguity in terms of which projects attract the Service Tax and which do not."

 

 Regards,

Ritu Tanwar

9891598540

Image Public Relations

: Budget reaction from Mr. B. Ramaswamy, MD of Sonata Software

Given below is the quote from Mr B. Ramaswamy, MD of Sonata Software. Also, please find attached his photograph.

 

"The most striking feature of the budget has been the expression of confidence by setting a growth objective of 9%. From the industry's point of view, scrapping of the FBT and clarification on the service tax applicability on packaged software are positives. Extension of STPI, though welcome, has fallen short of expectations."

 

Regards,

 

Girija

Post Budget Quote from Hexaware Technologies

A WELCOME BUDGET

 

This is a welcome budget; it will stimulate growth and it also brings several tax reforms

 

For the IT/BPO industry : It is very positive since it addresses almost all the concerns. Exemption under STPI scheme has been extended till 31^st march 2011.

 

Tax anomalies for SEZ units have been removed. Fringe Benefit Tax (FBT) has been abolished making ESOPs more attractive. Also proper dispute resolution has been created for transfer pricing.

 

This budget will help the Indian IT/BPO industry to remain globally competitive

 

-                      Mr. Atul Nishar, Founder & Executive Chairman, Hexaware Technologies Ltd.

 

 

About Hexaware:

Hexaware is a leading global provider of IT and BPO services. The Company has achieved leadership position in domains such as Banking, Financial Services, Insurance, Transportation, Logistics and HR-IT solutions. Hexaware focuses on delivering business results leveraging technology solutions and specializes in Business Intelligence & Analytics, Enterprise Applications, Independent Testing and Legacy Modernization. Hexaware has been providing technology solutions for business for 18 years and offers world class service delivery, technology leadership and skilled human capital. For additional information logon to www.hexaware.com

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Reactions to Budget from MetricStream

 

Please find below the budget reaction from Mr. Shankar Bhaskaran, Senior Director of MetricStream. Also, please find attached his picture.

 

1) Mr. Shankar Bhaskaran, Senior Director, MetricStream, the market leader in the enterprise-wide, Governance, Risk, Compliance (GRC) and Quality Management solutions

"Given the current economic scenario, I think it is a very balanced budget in terms of growth and stability. The key focus is obviously on getting the growth rate back to 9% at the earliest with primarily focusing on infrastructure, agriculture and continuous in flow of foreign capital.

It is heartening to see that there are a lot of positive steps taken in the budget to bring the economy back to its normal state, such as, reduction of CENVAT, reduction Of Excise Duties for various sectors including Pharma, Automobile sector, etc., Section 35D benefit extended to service companies, cut on the Customs Duty on project imports will have a positive impact on Engineering and Power Cos.. However, in certain areas, the budget has disappointed the business community, such as, no extension of tax holiday for EOU/STPI. Overall, I feel that the budget is a positive one for India."

 

Regards,

 

Girija

Reactions to Budget from SpikeSource

 

Please find below the budget reaction from Mr. Ramesh Shastri, MD India of SpikesSource. Also, please find attached his photograph.

 

1) Mr. Ramesh Shastri, MD India, SpikeSource, a provider of business-ready solutions 

 

"Poor infrastructure leads to increased cost of products and effects service delivery. Hence government focus on infrastructure is very welcome. However quality and speed of execution is critical.

The share of our IT sector as a percentage of the Global Market is still very small. We have made good progress in the IT services sector; we are now beginning to see more activity in areas of Intellectual Property development. Hence continuation of benefits would help."

 

 

Regards,

 

Girija

Reactions to Budget from Jivox

 

Reactions to Budget from Jivox. Kindly publish. Regards. Girija

 

Please find below reactions from Naren Nachiappan, MD India of Jivox. Also, please find attached his picture.

 

Mr. Naren Nachiappan, MD India, Jivox, India's no. 1 online video ad company

* This is a budget that affirms the fact that in many broad ways India's economy is heading in right direction.

* The current international economic crisis is being seen as cause of the drop in GDP. That is why no drastic steps being taken to overcome that as the FM said that the worse is over.

* There has not been many drastic policy changes indicating that government wants to stay course.

* Increasing tax exemption, especially for women and senior citizen will mean the middle class of India will have more cash in hand.

* Many brands will eye that extra cash and advertising for that segment will increase. As online video ads enable better targeting than TV video ads, there will be more interest coming from big brands.

* Online spends among TV manufactures and consumer electronics will increase. To convey feel, they will do more online video ads

* FMCG sector has been stable through the day. This reflects markets understanding that extra cash with middle class converts into good revenue for FMCG too. They will be spending more in advertising to attract that segment.

 

 

Post Budget Reaction - Kale Consultants Ltd.

Hello,

 

Please find below the quote on behalf of  Vipul Jain - CEO & Managing Director, Kale Consultants Ltd.

 

The finance minister has given a balanced approach to the budget. Initiatives towards abolishing FBT and increase in tax exemption for salaried employees is commendable. The 1 year extension of the STPI scheme is appreciated, but a longer extension would have definitely helped the industry. Increase in MAT is also not a favourable move. The honorable minister had a good chance to boost the corporate sector in face of the economic conditions, but the focus seems to be on driving demand by giving incentives to the rural sector.

 

Please find attached the photograph of Vipul Jain. 

 

 

Warm Regards

 

Dhanya Nambiar

Adfactors PR Pvt. Ltd. 

Technology Communications Group
Raj Mahal, 4th Floor,
84, Veer Nariman Road, Churchgate,
Mumbai 400020
tel: +91 22 2287 1361
fax: +91 22 2287 1365
mobile: +91 9324490030

 

Post Budget Quote from Hexaware Technologies

Hi,

 

Kindly find below the Post Budget Quote from Hexaware Technologies.

 

 

 

BUDGET QUOTE

 

Date – 6^th July 2009

 

Spokesperson – Atul Nishar, Founder & Executive Chairman, Hexaware Technologies Ltd.

 

 

This is a welcome budget; it will stimulate growth and it also brings several tax reforms

 

For the IT/BPO industry

It is very positive since it addresses almost all the concerns. Exemption under STPI scheme has been extended till 31^st march 2011.

 

Tax anomalies for SEZ units have been removed. Fringe Benefit Tax (FBT) has been abolished making ESOPs more attractive. Also proper dispute resolution has been created for transfer pricing.

 

This budget will help the Indian IT/BPO industry to remain globally competitive

 

 

 

 

Warm regards,

 

Serena Paes

Account Executive

 

Adfactors Public Relations Pvt. Ltd.

Raj Mahal, 4th Floor

84,Veer Nariman Road,

Churchgate, Mumbai - 400020

Tel: +91 022 22871361

Mobile Number: 9833100320

Fax: +91 022 22871365

email: serena.paes@adfactorspr.com

Web: www.adfactorspr.com

P Please do not print this email unless it is absolutely necessary. Spread environmental awareness.

 

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Visit my Netlog profile

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Budget quote from MM University

Dear Sir,

Please find the budget Quote from MM University, Mullana.

"The improvement in the higher education system could only be achieved through a balanced partnership between the public and private sector. This, in turn, called for liberal policies by the government for increased private-sector participation along with a significant upgrading in the public education infrastructure since; to improve the state of education it is very important to give opportunities to other players in the market" said Mr Tarsem Garg, Chancellor MM University.

Regards,

Aanchal Sood
PR Executive
Blue Lotus Communications Pvt Ltd
II Floor, SCO 43,
Sector 47 D, Chandigarh
160047
09876574040
0172-5034004

Expectations and Wish list for insurance industry from Budget

Expectations and Wish list for insurance industry from Budget

By Shashwat Sharma, Director, Financial Services, KPMG

The Indian insurance industry has witnessed several changes in the
last eight years post liberalization than it had in the previous one
hundred years. Changes in the industry have been so drastic that all
the companies, the incumbent LIC included, had to review their
strategic plans several times in the last eight years!
De-tariffication in the Non-life segment and high capital requirements
in the Life insurance segment posed new set of challenges to the
players.

These challenges however, have not reined in growth and the growth
rate continues to remain one of the highest in the world. But to be
able to sustain these growth rates and overcome the current economic
downturn, the industry needs a fillip from the Government and the
Regulator. While the last year's budget witnessed some initiatives
like increase in deduction for individuals for payment towards medical
insurance premium for parents, some of the key issues like Foreign
Direct Investment (FDI), carrying forward of losses, tax exemption for
long term investments remain unresolved. We hope that this year's
budget would address these issues.

Expectations and Wish list:

* Foreign Direct investment to go up to 49%: This has been
discussed for long time now and had also been included in the
insurance reform bill, introduced in December 2008. It is expected
that FDI would be increased to 49% in this budget session
* Permission to the foreign re-insurance companies to open
offices: As presented in the insurance reform bill, it is expected
that the foreign reinsurance companies would be allowed to open
offices and conduct business in India to provide a fillip to
reinsurance business in India
* Losses to be allowed to be carried forward for 10 years: Life
Insurance business has a long gestation period with average break-even
period of around 10 and 12 years. The current global economic crisis
has only helped in elongating this period. In view of the current
global economic scenario and nature of the industry, we hope that the
life insurance companies would be allowed to carry forward their
losses for 10 years as compared to the existing prescribed limit of 8
years
* Increased tax exemptions for life insurance and pension plans:
Life insurance and pension plans are the key financial instruments
which can meet the long term investment needs of the individuals and
provide social security to them. To promote the long term savings
amongst the Indian consumers, we feel the need for providing a
separate limit of deductions (apart from Rs 1 lac) under Section 80C
for life insurance and pension plans
* Encourage public private partnership: Public Private Partnership
(PPP) can play a key role in promoting insurance specially health
insurance in India. While Government has encouraged PPP in past by
implementing schemes like RSBY, it is expected that the Government
would launch more schemes like RSBY to provide social security
coverage to poor households
**

Constructing the Way up - Budget 2009

Constructing the Way up - Budget 2009

By Nandita Tripathi, Associate Director, Tax, KPMG

The recent downturn has hit the realty sector the hardest. From a
stage where cash was chasing limited quality projects, the sector is
now facing a severe financial crunch. While the Government with a
clear mandate has provided the requisite stability to the economy, it
should now focus to retrieve the sluggish real estate sector, being a
key driver of the Indian economy.

Real estate in India is the second largest employer next only to
agriculture and its size is close to USD 12 billion, growing at 30%
per annum. Growth in the sector has a direct impact on its ancillary
industries of steel, cement, etc. In the backdrop of its importance
to the growth of the Indian economy, it is vital for the Government to
nudge growth in the sector to newer heights through fiscal stimulus
which would also help make affordable housing a reality and within the
reach of the proverbial "aam aadmi".

As a first step, the Government should accord "infrastructure status"
to the housing sector and appoint a regulator to act as a single
window for overseeing and monitoring the affordable housing agenda.
After being hit by the global financial meltdown, real estate
developers have now recognized the growing demand for affordable
housing. To provide further impetus to this direction of development,
the Government should consider reinstatement of the tax holiday
benefits under section 80IB-(10) for affordable housing projects.

Increase in the limit of interest on housing loan from the existing Rs
1.5 lacs to Rs 3 lacs and a corresponding increase in the tax
deduction limit for the principal loan amount would further go a long
way to enhance the common man's appetite for home loans by lowering
their tax outflows and hence, making their dream home a reality.

Large scale developments such as SEZs and Industrial Parks are the
answer to India's next round of industrial growth. The existing law
provides unequal tax structures for SEZs and Industrial Parks. Despite
the latter being granted "infrastructure status", restrictive and
stringent application of tax incentives coupled with delays in timely
clearance of applications has seen far and few takers for development
of Industrial parks. Tax incentives similar to SEZs should also be
granted to Industrial Parks. Given that such large developments are a
key factor to growth of India's industrial/ commercial sector, there
is definitely a case for extending the tax holiday benefits for
Industrial Parks which expired in March 2009, to March 2015 and
relaxing the tax holiday provisions.

In the current economic slowdown, Real Estate Mutual Funds (REMFs)
could provide the necessary financial support to the cash starved
housing sector. However, since its introduction a year back, REMFs
have not found any takers due to unclear regulations and absence of
guidelines for their tax treatment. Recognizing the need for REMFs as
an important capital contributor for the sector, the Government should
consider aligning the regulations to global best practices, including
providing a tax pass through status for registered REMFs.

Separately, outdated and draconian provisions such as section 50C
should be repealed as they result in an unfair basis for taxation. In
today's times, where real estate transactions are governed by market
dynamics, applying a notional basis for taxation causes undue hardship
to the taxpayer. Section 50C deems the transfer value adopted for
stamp duty purposes (ie the circle rate) as the consideration for
transfer of a capital asset being land or building, where such value
is higher than the actual sales consideration. The irony is that these
values fixed more than 5 years back have not been brought down even
when prices in the real estate market have fallen.

On the indirect tax front, in light of recent clarification issued by
tax authorities, credit of service tax paid on construction activities
is not available as the output in such case is an immovable property,
which is neither 'service' nor 'goods'. This clearly results in input
cost burden on developers due to denial of credit of service tax paid
on construction activities against output service tax liability. The
aforesaid clarification is against the scheme of the CENVAT credit law
as the definition of 'input service' specifically includes services in
relation to setting up, modernization, renovation etc. Accordingly, in
order to reduce costs, it should be clarified that credit of service
tax paid on construction services would be admissible against output
service tax liability of the developer.

In the backdrop of the wish-list provided above, it would be a tough
balancing act for the Finance Minister but given his background as a
seasoned politician and his experience in the North Block, the real
estate industry is looking forward to his guidance in the forthcoming
budget to steer clear of the current crisis.
**

Logistics Sector - Pre Budget Expectations

Logistics Sector - Pre Budget Expectations
Ravi Shingari, Associate Director, Tax, KPMG

In parity with the international trends, the logistics sector in
India, over a period of time, has developed into a key service sector
helping majority of businesses (including automobile, pharmaceutical,
FMCG among others) concentrate on their core activities while their
logistics requirements are taken care of by such third party logistics
companies.

However exorbitant logistic cost (14% of the total value of goods)
still erode the competitiveness of the Indian goods in the
international market and shall continue to do so unless corrective
measures are not taken, according to The Associated Chambers of
Commerce and Industry of India (ASSOCHAM).

The Joint Paper brought out by KPMG-ASSOCHAM says that administrative
hurdles account for large delays and additional cots for the logistics
sector. The Paper further says the areas of improvement exist in all
segments of logistics chain viz., trucking, warehousing, rail
transport, port operations, customs procedures, material handling etc.
while each of these needs to be addressed in their individual contexts
at the earliest, the greater imperative is to coordinate the
initiatives in a phased and planned manner.

Budget 2009 is expected to be positive for the logistics sector as
various policy initiatives may be announced to boost the industry. The
industry strongly suggests setting up a separate regulatory authority
for the logistics sector as a whole along the same lines as the
Insurance Regulatory & Development Authority and Telecom Regulatory
Authority of India.

The frequent suggestions voiced by the industry today include, among
others, the following:

* The Indian Railways' plans to set up a Multi-modal Logistics
Park and intelligent inventory management at selected locations along
the Dedicated Freight Corridors (DFCs) should be taken on a
war-footing
* Allow issuace of Form 'C' for setting up ports, logistic parks,
transportation facilities, etc. (similar to power, telecom) by way of
suitable amendemnt in CST laws
* Provide an exemption from applicability of Service tax on
various infrastructure/ construction projects in relation to logistics
sector (at present such exemption has been granted to ports, airports
etc. but not specifically for logistics sector)
* Currently, services in relation to logistics sectors are covered
under various services categories like Cargo Handling, Business
Support, Transportation of goods by Air/ Road/ Rail, etc. and there
appears to be an overlap as regards the scope of activities covered
under each of these categories which leads to confusion as regards
taxability and classification. Accordingly, suitable clarifications
should be issued regarding classification of services and
applicability of Service tax on various revenue elements pertaining to
logistics sector to avoid any disputes with the authorities
* Currently, Service tax laws provide an option to discharge
Service tax liability under abatement scheme in certain specified
categories (including transport of goods by road/ rail). However,
service providers engaged in providing similar services (along with
other services) who are discharging their liability under other
taxable categories (e.g. Transport of goods by air) do not have such
an option. Accordingly, suitable amendments be made in Service tax
laws, providing the option to pay Service tax under abatement scheme
under such other categories
* While export cargo is exempt from Service tax under Cargo
Handling services and Transport of goods by air service, similar
exemption is not currently provided under other taxable categories
like Transport of goods by road/ rail and Business Support Services. A
blanket exemption may be granted to such export cargo irrespective of
classification
* Imported raw materials & parts for use in manufacture of
specified ships enjoy exemption from effective Customs duty. However,
similar exemption is not provided from levy of Excise duty on domestic
procurements of such raw materials and parts meant for manufacture of
ships. Such anomaly should be done away with to boost the domestic
industry
* Centralized toll mechanism is needed to ensure uniformity in the
toll charges paid by trucker drivers at various check points.
* Since time-definite delivery is critical, inter-state
check-posts should have a clearance passage for refrigerated
transportation

Consequently the logistics sector expects the Government to take note
of its long pending demands and bring about positive and encouraging
policy changes to help provide boost to this deserving sector.
**

Expectations of Roads/ Highways Sector from Budget 2009

Expectations of Roads/ Highways Sector from Budget 2009
Nabin Ballodia, Director, Tax, KPMG

The roads/ highways sector in India forms a critical part of the
overall infrastructure space and is significant to any hopes that the
Government may have to revitalize the economic activity. The
Government has embarked upon an ambitious plan of augmenting existing
network of national and state highways besides development of new
expressways. It is estimated that an investment of approximately USD
50-60 billion is required to improve road infrastructure in India. In
order to make an investment of this magnitude, the Government,
understandably, is aggressively pursuing 'Public-Private Partnership'
Model.

However, the Government needs to take a serious look at the current
tax provisions in order to present a viable risk return profile to the
private investor. One of the major anomalies in the current tax
provisions that require immediate attention is the applicability of
Minimum Alternate Tax ('MAT') to companies engaged in developing roads
and highways. While section 80IA of the Income Tax Act, 1961 ('the
Act') provides tax holiday for 10 out of 20 years to such companies,
they are still liable to pay MAT at the rate of 11.33%. In effect, the
incentive provided by section 80IA is diluted to a great extent by
applicability of MAT. The Finance Minister should consider correcting
this anomaly in order to attract further private investment in the
road sector.

One of the major initiatives taken by Government includes broadening
of existing network of national and state highways. While the project
includes adding additional lanes, construction of over-bridges and
relaying the entire stretch, there is considerable ambiguity over the
status of refurbished highway in the context of applicability of
section 80IA. It is important to note that tax holiday under section
80IA is available only in respect of 'new' infrastructure facility.
The dispute is whether the refurbished highway will be considered as a
'new' infrastructure facility or not. The industry hopes that the
Finance Minister would clarify this issue and include broadening of
existing highways within the ambit of section 80IA.

The government should also consider restoring the neutrality of
corporate restructuring transactions in the infrastructure space. As
per the current tax provisions, if the undertaking which is engaged in
developing/ operating the highway is transferred before the expiry of
tax holiday period (10 out of 20 years), the transferee is not
entitled to the tax holiday for balance number of years. Such a tax
regime virtually stubs out an investor who, although interested in
developing the project, may not be keen to stay invested for a longer
duration of time, especially after completion of the construction
phase.

As far as indirect taxes are concerned, there is a long standing
dispute in relation to applicability of excise duty on pre-fabricated
structures (pre-stressed concrete girders, slabs etc.) constructed at
casting yards away from site during construction of road. The industry
contends that the structures are customized according to a specified
project and are therefore not liable to excise duty. However, this
argument does not find favor with the revenue department. Further,
benefit of concessional rate of central sales tax of 2% on production
of Form C is not allowed on inter-state purchases for goods used in
road construction projects. Both of the above substantially increase
the cost of the project. The industry is hopeful that the Finance
Minister would look into this matter and provide suitable relief to
the industry.

The scale of activity in the road/ highways sector is bound to
increase, given that the higher echelons of the Government have made
clear that it attaches top priority towards investment in
infrastructure space, particularly roads and highways. However, a
timely move to set right, the anomalies in the current tax provisions
and provide further fiscal incentives would certainly go a long way in
enabling further investment in the road sector.
**

Budget 2009: Indian Aviation - Looking forward to clearer skies

Budget 2009: Indian Aviation - Looking forward to clearer skies

By Naveen Aggarwal, Executive Director, KPMG

The Indian aviation sector has witnessed exponential growth over the
past few years. The Vision 2020 statement announced by the Ministry of
Civil Aviation, envisages and is committed to creating infrastructure
to handle about 280 million passengers by the year 2020. Through the
interim solution of cutting down domestic flights and moving them over
to international routes, the Indian aviation sector has done clever in
curbing the crisis. Further, the resilience of the Indian economy seen
in recent times is also helping reinforce a safe flight for the
country's aviation sector.

Despite the promising environment, the sector has not been insulated
from the ill-effects of the recent downturn triggered by the global
financial crisis. A consistent drop in load factors despite fare
revisions, sliding rupee vis-a vis the dollar making operational costs
sky rocket and exchange fluctuations impacting leasing and maintenance
costs are some of the factors that the industry has had to bear in
recent times. Adding to this, the inadequate infrastructure in
airports to support airlines have created a black hole in the profits
and left the companies grappling with huge losses and building debts.

To this effect, the Government needs to propel the sector to meet the
ministry's vision by implementing an investment oriented tax regime
which encourages growth and improved infrastructure.

Incentives in the form of a 10 year tax holiday are available to
infrastructure facilities (including airports) with a view to attract
investors in this space. These benefits are available for developing,
operating and maintaining any new infrastructure facility. Common
inference of this is believed to be that the term 'new infrastructure
facility' would refer to a green field project however it remains
ambigious whether the tax holiday would be available in respect of
modernization, upgradation, redevelopment of the existing airports.

Since substantial investments are being made towards upgradation of
existing airports, the issue needs to be looked into greater detail
and it may be clarified whether the tax holiday would also be
available to the developers of existing airport facilities.

On indirect tax front (excise/ custom duties/ VAT), it would be a
reasonable aspiration for the sector to expect some tax relief/
concessions on supplies made on airport projects, as they assume a
significant cost. Similarly, service tax exemption on outsourced
services for such airport projects may also be looked into to boost
infrastructure.

On another aspect, lease rentals on aircrafts are subject to levy of
fringe benefit tax (FBT). This is a huge cost to airline operators
considering the high value transactions and puts a further squeeze on
the airline margins. In this context, exemption from levy of FBT will
definitely be a welcome move.

Under the current system, service tax is charged on international air
travel undertaken by passengers from India other than those traveling
in economy class. Also, tax is levied on air transport services
provided to a passenger embarking in India for international journey
by scheduled airlines. Several arguments have been propagated against
this, primarily on the grounds that such services are essentially
provided outside India and therefore should not be chargeable to
service tax. The issue gets further complicated with the fact that
export benefits are also not available in respect of such services,
since the same have been kept out of the ambit of Export Rules.

In addition, tax authorities are of the view that this tax is leviable
on the full value of ticket even in cases where there are stopovers in
and outside India or where tickets are booked for the return journey
or where bookings have been made from outside India for an
international journey commencing from India. A suitable clarification
on the above is long-awaited by the industry.

Gliding further, presently the Aviation Turbine Fuel (ATF) is
chargeable to Excise duty at the rate of 8 percent, and VAT is levied
by the States at varying rates generally in the range of 20-30
percent, thereby resulting in a very high effective tax rate in the
range of 30-40 percent for ATF. This coupled with uncertain crude
prices results in a major financial burden for the airlines. With
this backdrop, the industry has been long demanding 'declared goods'
status for ATF, which would help reduce the applicable VAT to 4
percent or lower.

The above steps would certainly be in line with the Government's
commitment over last few years with respect to encouraging the
investment in this sector. With the 2010 Commonwealth Games a little
over a year away, airline traffic is expected to grow substantially
and the Government should clearly aim for investment-oriented tax
incentives with intent to meet the increased infrastructural
requirement in the sector.

In essence, the Indian aviation industry is now moving ahead from
turbulent times to more stable skies and clarity by the government on
key tax issues plaguing the sector today would certainly go a long way
in providing the much needed momentum to the Indian Aviation.
**

Budget 2009 – Expectations of common man!

Budget 2009 – Expectations of common man!

Vikas Vasal, Executive Director, KPMG

It is human nature to expect more, every time. Similar is the
situation this time wherein individual tax payers have lot of
expectations from the new UPA Government which is going to announce
its Budget shortly. On one hand, there is an expectation to lower the
tax rates while on the other hand there is an expectation to increase
the social and infrastructure expenditure. Therefore, it is always a
tough task for every Finance Minister to balance out different
expectations while preparing the Budget.

Nevertheless, few of the key expectations of the common man from this
year's Budget are as follows:

Revision in tax slab rates for individuals

It is a fact that in the last one year, individuals and families have
faced many challenges in respect of their income and expenses. The
global economic slowdown, has impacted the Indian industry and
business, which in turn has put pressure on the income levels, job
security, etc., for the individuals. Therefore, there is lot of
expectation from the individuals to provide some relief from tax this
year. Currently, the minimum amount not chargeable to tax for
individuals is Rs.150,000. This should be raised to Rs.250,000.

Correspondingly, for females this limit may be increased from
Rs.180,000 to Rs.300,000 and for senior citizens this should be
revised from Rs.225,000 to Rs.350,000.

The highest tax rate of 30% is triggered at a very low level of income
of Rs.500,000. This limit should also be enhanced to Rs.1,000,000.
This will provide more disposable income in the hands of the
individuals and hence boost the consumption, saving, and investment in
the economy. This in turn will help the corporate sector which is
facing recessionary pressure owing to global economic crises.

Reduction in peak rate of 30%

The maximum rate of individual income tax is 30% which with surcharge
and education cess amounts to 33.99%. This is on higher side as
compared with other countries like Russia, Hong Kong, Singapore, etc.
Further, under the current tax provisions not many
exemptions/deductions are available to the individuals especially the
salaried individuals. Therefore, the peak rate of 30% should be
reduced to 25%. This will increase the purchasing power of the
individual and stimulate demand in the economy.

Surcharge on tax for individuals

Surcharge @10% on tax is levied if total income of an individual
exceeds Rs.10,00,000. Surcharge was introduced as a short term measure
to collect revenue to meet certain contingencies being faced by the
country. Therefore, the intention of levying surcharge was always for
specified reasons and for a particular period of time. Hence, the
surcharge should be removed.

Limits for deduction u/s 80C

Currently, the deduction allowed u/s 80C of the Income-tax Act, 1961
(the Act) is limited to Rs.100,000 for different investments/ expenses
incurred by individuals. In view of the fact that there is no
comprehensive social security scheme in India, (though a good
beginning has been made recently with the New Pension Scheme) that
could provide support and take care of individuals after their
retirement this limit is very low in today's context. Therefore, this
limit should be enhanced to say Rs.200,000 per annum.

Separate deduction for education expenses

Education is the backbone for long-term development of any society.
India is no exception. A large majority of the individuals in our
country still struggle to meet their ends meet. Therefore, providing
quality education to their children still remains a distant dream even
after more than 60 years of independence.

The Government had earlier provided relief in this context by allowing
deduction upto Rs.100,000 u/s 80C in respect of expenses incurred
towards tuition fees in any university, college, school or any other
educational institution. This deduction is, however, clubbed with
other investments u/s 80C, even though; it has a very different
objective to meet. Therefore, a separate deduction of upto say
Rs.100,000 for education expenses incurred on the education of the
children/other family members should be allowed. Also, as a family
planning measure, this limit may be restricted upto Rs.50,000 per
child upto a maximum of two children, upto 18 years of age.

Re-introduction of standard deduction

Salaried individuals pay tax on their gross salary. No deduction is
allowed to them while computing the taxable salary in comparison to an
individual engaged in business / profession. In today's times, it is
equally essential for the salaried individuals to keep abreast with
the latest developments in their area of work/specialization. For this
purpose, they incur expenses on journals, magazines, trainings etc.
that may not be paid for by the employer. Further, the concept of
"home offices" is becoming popular, which again entails additional
costs for the salaried employees that are not picked up by the
employer. All these expenses are in the nature of official expenses in
the true sense to earn salary income and are not merely personal
expenses.

As against this, other individuals who are in business or profession
are able to compute their taxable profits by claiming various expenses
that are essential for carrying on such business/profession.

As an outcome, there is a disparity between the salaried employees and
those carrying on business / profession, resulting in higher tax being
paid by the salaried employees.

To bring in the necessary parity amongst individuals, the government
should reintroduce the standard deduction that was allowed earlier.
Approximately 20% of the gross salary, subject to a maximum limit of
say Rs.50,000, could be considered for the purpose of standard
deduction.

Medical reimbursement by employer

The non-taxable medical reimbursement to the salaried employees by the
employer is limited to Rs. 15,000 per annum for self and dependents.
This amount is very low as medical expenses have witnessed substantial
increase in the last few years. A re-look in this matter to enhance
the limit, with adequate checks to curb misuse of claiming frivolous
expenses, is desirable. The limit could be increased to Rs.50,000 per
annum to provide genuine relief to the employees.

Further, there is no significant loss to the revenue as Fringe Benefit
Tax (FBT) is paid by the employer on the non-taxable portion of the
medical expenses.

Transport allowance

Transport allowance is presently exempt from tax to the extent of
Rs.800 per month i.e. Rs. 9,600 per annum. This exemption is on
account of conveyance expenses incurred by the employee on travel from
home to office and back. Keeping in view the rising transportation
costs, the amount of exemption does not compensate for such expense.
Therefore, this limit should be enhanced to provide relief to the
employees. A more realistic limit would be Rs.2,500 per month.

Alternatively, if the amount is not proposed to be increased, this
allowance could be removed altogether and the slab rates for taxes
increased accordingly to provide relief in respect of transport
expenses incurred by the employees.

Education loan for higher studies

At present, deduction u/s 80E of the Act is allowed on interest for
education loan taken for certain specified courses. The principal
amount is however, not allowed as deduction. Prior to the amendment in
this section, both the principal and interest amounts were allowed as
deduction subject to specified limits.

As education is one of the important focus areas of our government
(for which even education cess is levied on tax payers), it is
desirable that repayment of principal amount is also considered for
claiming deductions.

Interest on house property

The present limit for claiming deduction u/s 24 of the Act on interest
paid for loan taken on house property is restricted to Rs.150,000 for
a self occupied house. Keeping in view the upward revision in the
interest rates on housing loans and the ever increasing property
prices, it is only practical that this upper cap be enhanced
substantially to provide some relief from the high interest burden.
Accordingly, the limit could be increased to Rs.250,000.

Loan linked to construction period

It is pertinent to note that the interest deduction upto Rs.150,000 is
available only if the property so acquired or constructed is completed
within three years from the end of the financial year in which the
capital was borrowed. Most of the housing projects have been delayed
beyond their original completion dates and are taking more than three
years to complete. The aforesaid time period of three years should be
enhanced to five years, as in most cases, this delay is beyond the
control of an individual, who has taken the loan.

Adjustment of refund

Presently, there is no specific provision whereby an individual can
adjust the refund granted in a particular year against the tax payable
in the subsequent year. As a result, the individual pays tax for
subsequent year, while he simultaneously claims refund from the tax
authorities for the earlier year. This results in cash flow issues for
the individuals.

As a matter of procedural relief any tax refund to be granted by the
tax authorities may be allowed to be offset against the tax payable in
the following year.

Credit for foreign taxes for the purpose of TDS calculations by the employer

As per Double Taxation Avoidance Agreement (DTAA) between India and
various countries, Indian residents employed overseas who have paid
taxes outside India are entitled to claim tax credit for the tax paid
outside India. Accordingly, the balance tax payable in India by such
residents is computed after allowing credit for the foreign tax.

This credit, however, can be claimed by the individual only in his
personal tax return at the end of the relevant year. The said credit
cannot be claimed at the time of computing the withholding taxes (TDS,
as is commonly understood) by the employer, which results in an
adverse cash flow situation for an individual. If the entire Indian
taxes are deducted and deposited by the employer during the year, then
claiming such credit in the tax return could result in a tax refund
situation. Therefore, specific provision should be introduced in the
Act to enable the employer to withhold taxes after allowing credit for
the tax paid by individual outside India on his salary income.

Age limit for senior citizens

Generally, the retirement age for individuals is around 60 years.
However, under the Act, a person qualifies to be senior citizens on
attaining 65 years of age. Therefore, the age limit for senior
citizens should be reduced to 60 years so that they can avail the
benefit of higher threshold in income tax slab rates.

New Pension Scheme – self employed

Even though every Indian citizen including salaried employed and self
employed is eligible to participate in the New Pension Scheme (NPS),
however, tax deduction u/s 80CCD is available only to salaried
employees. Therefore, this anomaly needs to be corrected by making
necessary amendment in the Act and thereby providing relief to all
individuals including non-salaried employees.

New Pension Scheme – EET

Currently, the NPS works on exempt, exempt, tax (EET) model.
Therefore, income/amount received finally at the retirement age would
be liable to tax. In contrast, the other retirement schemes like
Provident Fund ('PF'), Public Provident Fund ('PPF'), etc work on
exempt, exempt, exempt ('EEE') model. Therefore, in order to
popularize NPS and encourage individuals to participate in the scheme,
the EEE model should be extended to NPS.

To sum up

Like the corporate world, individuals have lot of hope and
expectations from the Finance Minister in the current year's Budget.
While the Finance Minister also has a challenging task to contain the
increasing fiscal deficit keeping in view the tough economic
situation.

Therefore, it is a tough road ahead, still with lot of hope!
**

Retail Industry – Pre Budget Perspective

Retail Industry – Pre Budget Perspective

By Anand Ramanathan, Manager, KPMG Advisory Services

Indian retail employs about 8% of the country's workforce and accounts
for about 12 per cent of national GDP. It is second to only
agriculture in terms of inefficiencies in utilizing the factors of
production such as land, labour and capital. This is not to say that
the local kirana down the road is inefficient. On the contrary some
of the most efficiently run stores in terms of ROI and net stock turns
are not large chain stores but family operated small standalone kirana
shops. However, what make the overall retail sector look unproductive
is disguised unemployment, alarming levels of wastage, lack of scale
in sourcing, multiple levels of intermediation and lack of industry
status for a sector that is one of the largest employers and
contributors to national income. Unlike the issue of FDI regulation
that has received sustained activism on the part of retail
professionals these issues of productivity and realization of
efficiencies have not received the same levels of attention and
intervention at an industry and policy level.
The upcoming budget is set in the context of a stable government being
sworn in after a decisive mandate - with a strong focus on enhancing
infrastructure and promoting inclusive growth and an economy that
would be on a rebound trajectory reversing the slowdown that was
witnessed over the past year. Given this context of global recovery
and economic stability the budget presents an opportunity for policy
to clearly spell out the discourse for the retail industry. The
exercise provides an avenue for the present government to demonstrate
its credentials for promoting inclusive growth in a sector that has
pan India presence – rural and urban and is the largest segment within
the services pie of the economy from both an employment and income
perspective.

The Road ahead – Strategy, policy and initiatives

There has been a rising demand for giving industry status to the
retail sector. Industry status to retail is the first basic step
needed for reforming the retail sector. According to Assocham, the
industry status will not only give boost to the retail sector but also
make availability of organised financing and establishment of
insurance norms easier. Granting Industry status may also enable the
high potential retail sector to receive fiscal incentives and the
growth rate of retail would also be higher with simple legislations.
Retail operations currently need to obtain multiple licenses and
permits, ranging from basic trading licences to product-specific
licences to pollution clearances thereby adding time and cost to the
process of establishing a retail chain.

There is a need for a national marketing policy for the retail sector
in India as is the case for manufacturing, agriculture and tourism, to
increase penetration levels. Organised marketing in India has been
growing over 15% and has given a boost to real estate. It has,
however, not helped rural marketing, supply chain, consumption and
purchases by tourists. Malls have not gone into ethnic goods either.
A number of variants would have to be considered by the Government
while formulating a comprehensive policy including wholesale vs
retail, rural vs urban, lifestyle goods vs basic goods and organised
vs unorganised marketing.

The Government had earlier proposed further liberalisation in the
retail sector allowing 51 per cent FDI in consumer electronics, sports
goods, stationery and building equipment. The government has to follow
it up and implement it to attract more investment into the economy.
The government also needs to be clear regarding the rationale behind
allowing only 51 per cent FDI as against 100 per cent in single-brand
retailing. This question becomes imperative considering the benefits
offered by investments in the single-brand retail segment. There are
huge benefits in the form of better job opportunities, superior human
resource skills, enhanced consumer satisfaction and support to
ancillary industries.

Development of a regulatory framework is required for retail
establishing a proper and simplified licensing system, keeping in mind
the interests of all - the large and the small retailers, the farmers
and the national economy besides checking the private monopolies.
Since the operations of organized retailers impact upon various
sectors of the economy, policy guidelines should be framed involving
all the relevant Departments, including Commerce, Agriculture and
Urban Development. Moreover, since regulation of the large format
retailers would mainly be in the domain of the states and local
bodies, State Governments have to be consulted and involved in the
process of framing policy guidelines. A Central legislation or a Model
legislation, which can be enacted by the State Governments, may also
be considered for this purpose.

Strong labour reforms are also required for the retail sector as the
stricter labor regulation has a strong negative effect on employment.
Labor regulations fall under the jurisdiction of the state governments
and are contained in the Shops and Establishments Act (SEA).
Provisions like Compulsory registration of shop/establishment within
thirty days of commencement of work and certain Obligations of
employers and employees create a difficulty although ensuring proper
enforcement is also a big challenge.
**

Facilitating transactions/ restructurings in the infra sector - What should the Budget do?

Facilitating transactions/ restructurings in the infra sector - What
should the Budget do?

- Girish Vanvari and Vikram Naik

'Our government will have to focus on implementing and strengthening
the infrastructure investments' said Mr. Pranab Mukherjee on being
elected as the Finance minister for the coming 5 year term. In the
interim budget earlier, Mr. Mukherjee had emphasised the significance
of the forthcoming policies to bridge the gap in infrastructure
development by increasing investment therein to more than 9 percent of
GDP by 2014. The infrastructure currently in place is inadequate, with
port capacity needing to double by 2012, peak power deficits, and the
majority of current road projects running behind schedule. The growing
economy can be expected to put further strain on infrastructure
services. The current economic scenario is deterring private players
from investing in infrastructure, leaving room for increased
government initiative. While the government has been consciously
increasing infrastructure spend, some of the below fiscal measures may
be introduced in the forthcoming budget to provide impetus to its
plans.

The coveted '80IA Benefit'

Section 80IA of the Income Tax Act provides for deductions in respect
of profits and gains of enterprises engaged in infrastructure
development. Section 80IA (12) which earlier allowed continuity of
benefit of deduction to any enterprise transferred in a scheme of
amalgamation or demerger to the amalgamated/resultant company, was
withdrawn in the Finance Act 2007 with the introduction of subsection
(12A). While the rationale behind this withdrawal was to provide
incentive for initial investment and entrepreneur risk, we believe it
stifles the broader objective of Section 80IA benefit which is to
attract private investments in infrastructure. Enterprises now can
consider M&A activity only at the risk of losing the tax benefits.
Restructuring is crucial to global competitiveness and thus companies
need to reposition themselves quickly, especially in the current
economic environment. Additionally, 80IA does not mention anything
with respect to availability of benefit in situations other than
amalgamation or demerger, such as transfer via a slump sale.
Investment via M&A would be spurred if the restriction under
sub-section (12A) is revoked from retrospective effect and the
position on other methods of transfer is clarified.

It would also be worthwhile to explore the option of expanding the
scope of Section 80IA to exempt any income derived from modernisation,
upgradation, renovation and repair of infrastructure facilities. This
would also help attract investments in the airports and seaports,
which require extensive technological upgradation and modernisation to
meet the burgeoning demand.

Earlier benefit of deduction was available to even companies which
executed works contracts entered into with an infrastructure
undertaking. However, the same was repealed in 2007. Thus, the benefit
is now limited to entities which directly enter into an agreement with
the government to develop, operate and maintain infrastructural
facilities. However, it defeats the intent of the section which is to
provide incentive to enterprises engaged in the development of
infrastructure projects. Infrastructure contracts are spread over a
long duration and involve continuous sub-contracting. In view of this,
believe that benefit of deduction should be extended to such
sub-contractors as well.

Most infrastructure investments are capital intensive and have long
gestation periods. Although enterprises engaged in infrastructure
development are eligible for tax deduction under section 80IA, they
are liable to pay minimum alternate tax (MAT). Despite the
availability of MAT credit in the future, impact on the current cash
flows of companies strains their working capital. Thus, exemption from
MAT is sought to enable these companies to avail complete tax relief.

The finance minister should also consider extending the sunset clause
so that there is no interruption in the momentum of the investments in
this sector which requires a very strong progressive factor at this
stage of growth.

Investments in Brown-field projects

Currently, only companies in the business of development and
maintenance of infrastructure facilities, as defined under section
80IA, could be accorded the status of a venture capital undertaking
under section 10(23FB) and enjoy the benefits stated therein. However,
besides new infrastructure facilities, India also needs to make
massive and continuous investments in its existing but worn-out
infrastructure facilities. Thus, the finmin should consider including
companies undertaking restoration of such facilities to encourage
structured investment in these sectors.

Tax exemption under Section 10(23G)

Section 10(23G) exempted dividends, interest and long-term capital
gains (LTCG) of financing companies/banks investing in infrastructure
companies This reduced the cost of capital for infrastructure projects
at a time when interest and tax rates were high. These benefits were
repealed by the Finance Act 2006 on the grounds that the tax and
interest rates had come down, dividends distributed by domestic
companies were already exempt under Section 10 (34), and LTCG were
exempt on sale of investment in listed companies.

However, Dividend Distribution Tax (DDT) and MAT haven't allowed
complete freedom from tax since 2006. Also, it has made it harder for
infrastructure projects to establish credit support from lenders. This
is matter of concern as a large portion of the estimated $300 billion
in infrastructure investment over the next 5 years is expected to come
from the private sector. Investment in this sector would still be
subject to DDT, LTCG and MAT. Reinstating the 10 (23G) benefit would
address issues related to cost of capital, promote private
participation and increase capital liquidity and availability.

Double Tax Avoidance

Infrastructure companies usually have a multi-layer company structure.
Special Purpose Vehicles (SPVs) are incorporated for various reasons
one of which is required as per the covenants of the PPP Concession
Agreements entered into with the government. This means that dividend
distributed by the multi-layers of SPVs to the holding company is
subject to DDT everytime they declare dividend. Credit is available
under section 115O for the DDT paid only at one level below the
holding company. Providing relief from this double taxation in a
manner similar to the exemption granted to SEZ Developers would boost
the rate of return for private companies and encourage further
investment in the sector.

To summarise, in the recent past, the infrastructure sector has
witnessed enormous growth but it has been within the parameters of
various restrictions. However, given the need of the hour, its time to
rationalise these restrictions. The burgeoning demand for
infrastructure development not only presents a huge area of
opportunity, but will also undoubtedly augment India's impressive
growth trajectory. Hopefully, Mr. Mukherjee would translate his words
into actions to be able to justify the whole hearted mandate the UPA
government has received by the still optimistic people of this country
for an India Shining (actually).
**