In 2015 Finance Minister Arun Jaitley, for the first time, announced doing away with tax holiday citing reasons like undue litigation and loss of revenue. A phasing out plan of removing incentives was introduced in the last budget of 2016 and sunset clauses for various tax holidays/ exemptions were announced.
The accelerated tax depreciation rate (for instance, 80 percent or 100 percent in some cases) is expected to be limited to maximum 40 percent. This could potentially adversely impact the Internal Rate of Return (IRR) projections of infrastructure projects.
In this context, it is expected that the government will provide clarity on the applicability of lower corporate tax rate of 25 percent and consider continuing with tax holiday incentives for certain key infrastructure sectors, viz. housing, power, etc. considering the huge demand-supply gap in these sectors.
To facilitate “Ease of doing business in India” and reduce significant compliance cost and efforts, the government should consider allowing ‘Tax Consolidation Regime’ especially for road and power sectors, which are mandatorily required to set up separate Special Purpose Vehicles (SPV) to execute different projects. Allowing such infra group to set-off of losses/MAT credit from one SPV against profits/tax liability of another SPV would certainly provide boost and requisite growth to these sectors.
On indirect taxation front, it is likely that petroleum, oil and gas and power would stay outside the GST under current regime. However, input services and input goods would continue to be subjected to GST. In essence, proposed higher rate of GST of 18 percent (as compared to the present service rate) would result in increase of final cost of services to consumers. It is expected that Government may consider including these sectors within the ambit of GST.
It would be worth mentioning that the government is pushing its agenda of ending unnecessary litigations and to that effect, it has issued multiple circulars/ notifications in the last two years. For instance, recently, CBDT has issued circular on streamlining the procedure of obtaining NOC, clearance certificate and assessment of foreign shipping companies.
Similarly, to put an end to decade-old controversy of taxability of consortium as AOP for EPC projects, it has issued circular defining attributes of AOP, etc. While this is a welcome move, one hopes that Government should continue this trend of clarifying the controversies either through legislative or administrative amendments.
(Zobalia is partner, and Bagri director with Deloitte Haskins & Sells LLP)
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Updated Date: Jan 15, 2017 21:07:34 IST