The thrust for the sustained development of infrastructure continues to grow as we march ahead to the next fiscal year and the sector seeks to assume paramount importance especially, when the Indian Government has identified the need for USD 500 billion in infrastructure spending between 2007 and 2012.
The efforts of the Indian Government such as Public Private Partnerships (PPP), Green Energy, Ultra Mega Power Projects, Viability gap funding have been seen as stimulus to the growth of Indian infrastructure sector.
The fiscal as well as non fiscal measures for the infrastructure sector would be critical for the forthcoming budget as the Honourable Finance Minister, Mr. Pranab Mukherjee plans to keep India on a high growth trajectory.
This article focuses on various tax and fiscal measures that can act as key enablers for sustained high economic growth:
Tax incentives
The Government should reintroduce the tax exemption granted to companies, which invested in infrastructure projects on interest income and capital gains earned by such investments. This would help in reducing the overall cost of the infrastructure projects, thereby attracting more investments into infrastructure projects.
There have been lot of thrust by the Government on road/ highway projects and consequently, private players are keen to play a vital role. One of the issues faced by the private players at the time evaluating the viability of the project is availability of tax holiday. Typically, the tax holiday is granted to companies that are engaged in development of new infrastructure facility. There is a lot of a ambiguity vis-à-vis availability of tax holidays to companies, which have been awarded contracts for modernisation of roads, expansion of existing highways and so on -tax authorities have been contending that such projects do not amount to development of new infrastructure facility resulting in prolonged litigation. The Government should unequivocally endorse the availability of tax holiday to such modernisation/ expansion projects, which could help in attracting investments as well as reduce the overall cost of the project.
Currently, the tax holiday is granted to 'companies' which are engaged in the development of infrastructure projects. The Government should also extend this tax break even to the newly introduced Limited Liability Partnership LLP form of business setup. Such an incentive combined with the existing favourable tax regime applicable to LLP would have a multiplier effect on the viability of the projects.
In addition, the Government should exempt all infrastructure companies from payment of Minimum Alternate Tax (currently 16.995 per cent) thereby granting them a complete tax holiday scenario.
During the last budget presented by the Honourable Finance Minister, the tax holiday available to an undertaking engaged in power generation/ distribution if it begins to generate/ distribute power was extended to enterprises, which commence such activities on or before March 31, 2011. Given that most of the power projects are still at development phase and are unlikely to be operational before March 2011, the tax holiday should be extended to undertaking generating/ distributing power even after March 31, 2011.
Over the years, provisions related to the tax holiday for infrastructure companies were amended to include the companies undertaking pure
'development' of the infrastructure facilities (i.e. without undertaking operation and maintenance). However, owing to recent amendments in the tax laws there have been controversies on availability of tax holiday to companies engaged in such pure development activities. Since, the Government had intended to include pure development activities to be within the purview of the tax holiday, the Government should specifically clarify that the tax holiday would be available to developers (who assume entrepreneurial risk) engaged in development of infrastructure facilities even if they do not undertake operation & maintenance of the said facility.
Emphasis on PPP
The Government needs to facilitate PPP as means of financing the infrastructure projects given the fact that the Government would have limited resources at its disposal. Greater participation from the private sector in the infrastructure projects is extremely essential to meet the estimated spending requirements and the same can be achieved by providing various fiscal and tax incentive to private players.
Single window clearance system
Power projects and road projects need to undertake a host of approvals from various government agencies before the commencement of the project which typically leads to delays in implementation of the projects. Given this, there is a need for setting up a single window clearance system which could avoid potential delays, cut across the red tape and expedite the approval process.
To sum it up, it is not only the tax incentives that will drive the infrastructure sector, but even the other fiscal measures such as single window clearance, Public-Private Partnership and so on are equally important to boost the infrastructure in India.
Source : The Economic Times