Union Finance Minister Chidambaram's mool mantra during the latest budget - Our goal is higher growth leading to inclusive and sustainable development - seems evidence of the importance the Centre now attaches to infrastructure. HEMAL ZOBALIA and HARSHA RAWAL from KPMG offer their assessment.
Budget 2013 is poised to push infrastructure growth by introducing energy reforms, enhanced liquidity, increased planned expenditure, which will translate into higher development projects. It has laid down a guided framework for the infrastructure sector.
The Twelfth Five-Year Plan projects an investment of $1 trillion in the infrastructure sector, which is nearly double of that made during the Eleventh Five-Year Plan. The Plan envisages that the private sector will share 47 per cent of the investment. New and innovative instruments to mobilise funds are required for this order of investment.
The Government has taken or will take, interalia, the following measures to increase investment in the infrastructure sector:
The Government continues to support the renewable sector and in this regard it will make available low interest bearing fund to IREDA to on-lend to viable renewable energy projects; provide support to municipalities that will implement waste-to-energy projects; re-introduce 'Generation -based incentive' for wind projects.
A good transport system is the need of the hour, and for the same the Government will seek assistance from the World Bank and the Asian Development Bank to build roads in Northeastern states and connect them to Myanmar; award 3,000 km of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh, in the first six months of 2013-14.áAlso, a regulatory authority would be set-up for the road sector.
Other initiatives include devising PPP policy framework with Coal India Ltd to reduce dependence on imported coal; introduce a policy to encourage exploration and production of shale gas; review of oil and gas policy to move from profit sharing to revenue sharing contracts; construction of transmission system from Srinagar to Leh; construction of two new major ports in West Bengal and Andhra Pradesh (to add 100 million tonne capacity).
Correct implementation of projects is the key to fulfillment of the objectives and towards this path. The Government will set-up a Cabinet Committee on Investment to monitor quick implementation of investment projects.
The Finance Minister has taken certain bold steps in respect of the tax proposals.
On the direct tax front, for the infrastructure sector, it has been a gloomy tax budget with no reduction in tax rates; increase in surcharge rates; no relaxation from Minimum Alternate Tax (MAT) on infrastructure companies or from disallowance of expenditure incurred in relation to investment in Special Purpose Vehicles, broad basing the existing service tax exemptions in the infrastructure space, etc. With the current economic scenario, this is the best way in which the Government could meet its deficits.
With the demand for electricity and coal costs as well as imports rising, Budget 2013 has provided a reason for joy to the power sector undertakings which would start generating or distributing power. An extension of 100 per cent profit-based deduction (for a period of 10 years out of 15 years) is proposed for such power sector undertakings till March 31, 2014. To boost investment in the construction/infrastructure sector, the Government has proposed the following tax measures:
A clear googly has been the proposal to introduce tax on distribution of profits by way of buy-back of unlisted shares at 20 per cent. To add on to the surprises is the increase in the tax rate of royalty and fees for technical services received by non-residents to 25 per cent. These moves would be hard to digest.
On the indirect tax front, there have not been major changes, which may impact the infrastructure sector. The of peak rate of Customs duty, Excise duty and Service tax has been retained at current levels, which has come as a relief. Import duty on steam coal has been increased while duty rate of bituminous coal has been reduced.
Domestic transportation of petroleum and petroleum products through rail or vessel have been brought under the service tax net.
To conclude, considering the tight economic scenario, Budget 2013 has taken bold steps to uplift the infrastructure sector in India. However, the key remains in rightfully administering its implementation so that the benefits are reaped. On a tax front, the infrastructure/ construction industry would wish to say,"yeh dil maange more!"
About the authors: Hemal Zobalia is Partner-Global International Corporate Tax and Harsha Rawal, Director at KPMG.