There is no denying the fact that infrastructure is the growth pillar for the Indian economy. It is, therefore, disappointing to see very little development in the sector. As the Indian economy is showing a decline in average growth rate, there can be no better time for one to start having a look at the infrastructure sector with a more result-oriented focus.
Some key points for the Finance Minister to delve into to help achieve the investment objectives of the sector follow:
1) The removal of the minimum alternative tax (MAT) imposed on special economic zones (SEZs). A few years ago, when SEZ developers were brought into the MAT ambit, many felt betrayed by the government with respect to the initial tax holiday promises made. Now that the SEZ development space needs to be given a fresh lease of life, it will certainly be a move worth evaluating by the Finance Ministry.
2) There have been many voices in the favor of raising the Section 80C deduction limit of Rs 100,000 under the Income tax Act, 1961. Keeping in mind the long-term investment needs and low-cost funding being available for the infrastructure sector, it will be a good strategic move to bring back the Section 80CCF infrastructure bond deduction with an enhanced limit of Rs 50,000.
3) An extension to the tax holiday Section 80-IA for power generation will act as a positive enabler for the sector.
4) Considering the fact that many infrastructure projects require joint collaboration by companies for project execution, this often gives rise to such consortiums being taxed as an Association of Person (AOP). The relaxation granted in the past to the oil and gas companies under Section 293A of the Income tax Act, 1961, may as well be extended to companies in the infra space. This will facilitate Indian companies to collaborate with some of best in the engineering and construction business.
5) From a regulatory perspective, refinancing of existing rupee debts through cheaper external commercial borrowings should be allowed without any ceiling. In other words, the current limit of 25 per cent for refinancing should be eliminated.
6) Indian infrastructure companies should be allowed to list in overseas capital markets. This will provide access to cheaper funding options.
Although some of the items in the wishlist may or may not see the light of the day, it is crucial to have a more objective focus on the sector for long-term growth of the economy.
(Raju Kumar, associate director - tax and regulatory services, Ernst & Young. The views expressed are personal.)