Budget 2016: Clarity required on PPP model for infrastructure push

By Gaurav Karnik Budget 2016 is all set to be unveiled shortly which will lay down the government’s fiscal road map for the year. The Modi Government’s, Make in India, Start up India and Digital India initiative should provide an impetus to the manufacturing sector and technology sector, but to really fulfill India’s growth potential there is a need to give a significant push to the infrastructure sector. [caption id=“attachment_2630194” align=“alignleft” width=“380”]  Representational image[/caption] Year 2015 witnessed significant initiatives on tax and policy such as liberalization of FDI in construction and development sector, defence, airport and railway infrastructure, liberalization of ECB guidelines, clarity in REITS/InviTs taxation, etc., and it is hoped that the pace will continue. The initiatives of 100 Smart City and Digital India are great in theory and spirit but to transform into reality, increased budgetary allocations coupled with detailed focus on infrastructure development is required. Looking at the need of India’s demographic transition, efforts are required for recuperating the Public Private Partnership (‘PPP’) model of infrastructural development by providing clarity on the model, guidance on practical issues of renegotiation, mounting up finance, high governance and rebalancing of risk sharing between public and private partners. The new policy on highways and railway project is a positive move in this direction. Similar to road and rail, creation of Digital Highways to provide high bandwidth Internet across India as well fostering privatisation of airports, PPP model assumes significance. The expectation of the industry is to have focused and long-term tax incentives for infrastructure business rather than phasing out existing ones. Therefore, a judicious implementation of proposals for reducing corporate tax to 25 percent with phasing out of incentives in a select manner is needed. For making REITs/ InvITs structure attractive to the investors, the major requirement is to exempt dividend distribution tax by the SPV to the Trust. The widening of definition of ‘new infrastructure facility’ in tax holiday provisions is needed to cover modernisation /substantial expansion of existing infrastructure facility and support facilities/services integral to airport. Minimum Alternative tax (MAT) exemption for tax holiday companies is also recommended, Considering the long gestation period, huge capital investment and gigantic debt burden on these projects, allowing consolidation of tax returns at group level can aid in propelling the sector in the right direction. For investments in SEZs, the abolition of MAT and DDT is desired to restore the interest of stakeholders in this scheme. The global concern of climate change needs to be addressed through a stern and aggressive focus on the renewable/clean energy sector. Specific tax incentives for renewable power generation, waiver of electricity duty and banking charge for solar rooftops, tax exemptions for carbon credits /REC benefits will certainly attract and motivate more investments in these sectors. To complete the wishlist, in order for the industry to prepare itself, clarity on implementation of GST and its road map is required. Overall, it is time to stimulate the infrastructure sector on its growth trajectory with ease of doing business in India and creating a friendly tax regime with the right set of incentives and a flexible tax administration. The stakeholders in infrastructure sector eagerly await the Budget announcements.   (The author is Partner, Tax, E&Y. With additional inputs from Shweta Aggarwal, Senior Tax professional, E&Y)