Mint had commissioned consultancy Ernst & Young to provide an overview of the budget expectations of different sectors and supplement these with expert comments from the firm’s partners. The contents provide a sense of the change the budget could bring about:
Auto | Industry Wish List
• Rationalizing excise duties on small and large car segments to balance the presently skewed rates
• Reduction in custom duties (presently pegged around 98%) on import of cars running on alternative fuels
• Weighted deduction for technology upgrades
• Investment allowance for new plant and machinery for auto and two-wheeler ancillaries manufacturers
• Extension of tax holiday for export-oriented units and deduction of export profits to revive export growth
• Elimination of fringe benefit tax on car hire, running, repairs, maintenance expenses and of wealth tax on cars
Expert View | Vinesh Kriplani
The primary task is to stimulate the domestic demand. Reduction in personal tax rates, interest rate on vehicle loans and reintroduction of standard deduction for
the salaried taxpayer are a few measures that could immediately improve the cash flows and in turn fuel consumer demand. Dwindling fresh investments in the auto sector could be revived by measures such as accelerated depreciation, reintroduction of investment allowance, tax holidays for new industrial undertakings, 100% deduction of export profits for automotive companies. If the government focuses on development of technical capabilities for low-cost alternative energy vehicles by providing further tax concessions for research and development (R&D), technology acquisitions for alternative fuels and hybrids with simultaneous reduction in excise duties, India could well be on course to replace Detroit as the auto manufacturing hub.
Banking | Industry Wish List
• Allow deduction for provisions made for non-performing assets in compliance with prudential norms issued by the Reserve Bank of India (RBI) in full without the restrictions currently prescribed under section 36(1)(viia) of the Income-tax (I-T) Act, 1961
• Lock-in period for investment in specified bank deposits to qualify for deduction under section 80C of the I-T Act should be reduced to three years from five years presently to make such deposits at par with other tax saving instruments such as equity-linked saving schemes and mutual funds
• Allow full exemption for income earned from long-term lending to infrastructure sectors by reintroducing section 10(23G) of the I-T Act
• Provide a level playing field to Indian branches of foreign banks by extending the 20% concessional rate to income from deposits placed by non-resident Indians with foreign banks
• Allow banks to receive any income without any tax withholding
---------------------------- (Source: Indian Banks’ Association, Assocham)
Expert View | Hiresh Wadhwani and Subramaniam Krishnan
This year was meant to be a turning point for the Indian banking sector with the second phase of banking sector reforms that was expected to be launched by the RBI in April. The global financial crisis may have caused RBI to defer the implementation of some of the reform measures. However, the direction is most certainly in favour of a gradual enhancement in the presence of foreign banks. As a result, Indian banks (both public and private) are reinventing themselves and seriously considering consolidation to become financially stable and globally competitive. If deductions were available in full for provisions made for non-performing assets, it would be a big boost for this sector. The expectations from the new government are significant. With banks expected to play a crucial role in fulfilling the government’s agenda, the fiscal incentives and reliefs sought would provide the much-needed stimulus. For instance, infrastructure is likely to be the focal point for growth; perhaps income earned from lending to this sector could be made tax-exempt. Providing tax parity for investing in bank deposits as opposed to other instruments will also help this sector garner the requisite funds, which in turn will be deployed for India’s economic growth.
Also Read More on Budget 2009
Insurance | Industry Wish List
• Passage of the Insurance Laws (Amendment) Bill
• Ironing out kinks in the tax structure of life insurance firms
• Extension of the period of carry-forward of losses
• Clarification on the taxability of profit on sale of investments of non-life insurers.
Expert View | Anish Thacker and Prakash Shah
The hope that the amendment Bill will be passed in the budget session of Parliament hinges on the fact that it has a provision that would raise foreign direct investment (FDI) limits in the insurance sector to 49%, a long-pending demand.
There is a debate on whether the income in the shareholders’ account is entitled to the concessional tax rate of 12.5% (plus surcharge and education cess) given the mismatch in the profit reporting requirements, i.e., the profit reported to the Insurance Regulatory and Development Authority vis-à-vis tax authorities. The government should try and resolve it in the coming budget. Insurance companies can carry forward losses for a period of eight years but given that the current recessionary trends have further lengthened the break-even period for an insurance company, the government should reset the limit.
The government should clarify on the taxability of profit on sale of investments of non-life insurance companies, which the industry claims as exempt based on the legislative history and a circular issued by the Central Board of Direct Taxes, and which is being denied by the tax authorities.
Pension | Industry Wish List
• Tax exemption for withdrawals from the New Pension Scheme (NPS) launched by the Pension Fund Regulatory and Development Authority (PFRDA)
• Extension of benefits of section 80CCD of the I-T Act to self-employed individuals, professionals and unorganized sector workers
• Increase combined limit of deduction of Rs1 lakh under sections 80C, 80CCC and 80CCD of the I-T Act for specific investments in pension scheme/products. Alternatively, segregate deduction for contribution to pension schemes/funds from the overall capped limit
Expert View | Avan Badshaw and Jay Unarkar
Contribution to the NPS from an investor’s point of view is not as tax- attractive as investments in some other financial instruments/products/savings schemes. While the computed value of pension received from insurance pension products and employers is exempt up to specified limits, a similar treatment is not available to withdrawals under the NPS. The PFRDA has approached the government for complete tax exemption for investments into the NPS at all three stages, i.e., initial investment, periodic accretion of income and withdrawal. The deduction available under sections 80C, 80CCC and 80CCD of the I-T Act are applicable to multiple schemes/products and is subject to a combined cap of Rs1 lakh. There is no segregate deduction for contribution to pension schemes/funds from the overall capped limit.
The government should consider introducing the aforesaid recommendations on tax treatment of pension schemes/investments. Enhancement of the overall tax benefit of investments in pension schemes may well trigger a boost to contributions in the NPS/pension schemes/products.
IT and IT-Enabled Services | Industry Wish List
• Extension of tax holiday under section 10A/10B of the I-T Act for units in Software Technology Parks of India (STPI)/export-oriented units (EOUs) beyond the sunset clause date of 31 March
• Amendments in the section 10AA of the I-T Act relating to special economic zones (SEZs) to remove the anomaly in the formulas for computation of eligible profits which dilutes the tax benefits for SEZ units
• The National Association of Software and Services Companies (Nasscom) has also requested the government to resolve duplicity of indirect taxes for packaged software, provide clarity in policies for service tax refunds, develop uniform approach on transfer pricing and amend fringe benefit tax on employee stock ownership plans.
--------------------------------------------------- (Source: Nasscom)
Expert View | Sudhir Kapadia and Lubna Kably
To factor in the current volatile environment, Nasscom has taken a two-year view for its future forecast and estimates a 15% compounded annual growth rate to achieve export revenues of $60-62 billion by fiscal 2011. The information technology (IT)/IT-enabled services sector hopes for extension of the tax holiday benefits enjoyed by STPI/EOU units under sections 10A and 10B much beyond the sunset date of 21 March to ensure parity with SEZ units that enjoy a 15-year holiday under section 10AA. At least extension should be introduced for small and medium enterprises in this sector, which cannot afford to migrate to SEZ facilities. While the spirit of section 10AA is to boost new investments and capital formation, migration of the existing workforce to an SEZ unit should not result in disqualification from tax benefits. The interim budget had stated that the anomaly in computing the SEZ eligible profits would be rectified and this promise needs to be kept. Profits of tax-exempt units should not be brought under minimum alternate tax (MAT) purview. Safe harbours and advance pricing mechanisms will help mitigate the transfer pricing woes of captive companies in this sector. Getting IT software services into the service tax net in Budget 2008 has resulted in software licensing being liable to to dual levies of service tax and value added tax (VAT). Also, there needs to be clarity on the treatment of packaged software. Finally, what the Industry hopes for is certainty in tax treatment, speed in areas such as refunds and fairness in interpretation of laws.
Mining | Industry Wish List
• Section 35E of the I-T Act prescribes a ceiling of four years for claim of exploration costs; this ceiling must be removed
• Allow provisions on mine closure expenses, social and environment expenses
• Remove service tax on exploration/mining industry
• Grant infrastructure status to mining and extending tax holiday benefits to mining companies
Expert View | Sanjeev Jain
The National Mineral Policy, 2008, focuses on exploration, but income and service tax laws discourage it. The most urgent reform required is to amend section 35E to remove the cap on claim of exploration expenses and allow the claim of all exploration expenses with an option to claim the entire expense in the year of commercial production or over the period of lease. In the absence of the goods and services tax, service tax paid by mining companies on exploration becomes a cost for which no credit is available, and must be abolished. A tax holiday as given to oil and gas industry is required to support the development of world-class mines in India.
Real Estate | Industry Wish List
• Reintroduce tax holiday under section 80IB of the I-T Act for housing
• Tax holiday for hotels under section 80ID of the I-T Act to be extended to 10 years from the existing five years
• Reintroduce “tax pass through” status for domestic venture capital funds that invest in the Indian real estate sector
• Clarify that real estate mutual funds are to be treated as equity-oriented fund
• Extend external commercial borrowing (ECB) scheme to entire Indian real estate sector including SEZs and not just 100-acre township, hotels, hospitals
• It has been clarified that no service tax should be levied in case of pre-construction sale of residential complex where the seller and the buyer enter into an “agreement to sell”. Similar clarification to be issued for pre-construction sale of commercial complex
• Service tax on renting immovable property to be abolished
• In order to reduce the cost of procurement of capital equipment for construction purposes, reduction/rationalization of customs duty (exemption from special additional duty) and excise duty (8% to 4%)
• Reduce stamp duty to 5% and introduce system of credit for each stage of sale
• In personal tax, increase deduction available under section 24(b) of the I-T Act to Rs300,000 from current limit of Rs1.5 lakh for self-occupied houses
• Increase basic exemption limit under provisions of Wealth tax Act to Rs50 lakh against existing limit of Rs15 lakh
Expert View | Ganesh Raj and Gaurav Karnik
In view of the severe downturn in the real estate sector, there is a clear need for the government to provide stimulus to the sector to put it back on the growth path.
With the increase in the demand for affordable housing, there is a need to incentivize developers to meet this demand through reintroduction of the tax holiday under section 80IB. Similarly, the period of tax holiday for newly constructed hotels under section 80ID should be increased to 10 years from five. From an indirect tax perspective, service tax on renting of immovable property should be abolished. Some other measures that should be adopted to infuse liquidity are reintroduction of “tax pass through” status to domestic venture capital funds investing in real estate, placing real estate mutual funds on a par with equity-oriented funds from an I-T perspective, and extending the ECB scheme.
Pharma and Health Care | Industry Wish List
• Relax the conditions for availing weighted deduction of 150% for expenses on R&D and expand the scope of R&D expenditure eligible for this weighted deduction
• Reintroduce tax incentives to R&D units under sections 80IA/80IB of the I-T Act . Extend the benefit of these deductions to foreign companies as well
• Extend benefit of tax holiday under section 10A/10B to units engaged in pharma/healthcare exports
• Give option to hospitals in specified tier II and III cities to choose the five-year period for which they can avail the deduction granted to them from the 10-year period that they start functioning
• Exclude expenses on conferences of doctors and sales personnel from the ambit of fringe benefit tax
• Bring harmony between the Drugs Prices Control Order, which controls the pricing of scheduled formulations, and the transfer pricing regulations
• Extend customs duty exemption to more life-saving drugs
• Bring uniformity in excise duty rates of pharma finished goods and the essential input—active pharmaceutical ingredients (API)—by bringing down excise duty rate on API to 4%.
Expert View | Hitesh Sharma
The global industry is at a crossroads where it is facing challenges of containing costs, drying R&D pipeline and shrinkage of some developed markets. This puts India in an opportunistic position. At this juncture, for the Indian industry to take off and realize its full potential, it needs support to make it attractive in the Asian region, both for Indian firms and for multinational ones. Towards this end, the budget should look at giving incentives for R&D (this will help India to position itself as a powerhouse in this scenario). In addition, the growth engines for the Indian pharma and healthcare industry are contract manufacturing, clinical trials and augment investment and insurance in the healthcare sector, which would need stimulation.
The industry, similar to last year, still awaits impetus for exports. Also, to boost the domestic market, the industry bodies wish that the government looks into rationalization of excise duty and extension of exemption from customs duty to more drugs used for critical ailments. The pharma industry (in fact, all industries) is looking forward to the goods and services tax regime being expedited and certain other measures to bring about a better operating environment.
Retail | Industry Wish List
• Industry status is the first basic step needed for reforming the Indian retail sector. Granting industry status would help to focus on retailing development, granting fiscal incentives for the retail industry, availability of organized financing and establishment of insurance norms
• In order to stimulate demand for goods and services, personal income-tax rates should be reduced by 5 percentage points and threshold limit should be increased to at least Rs2 lakh
• A scheme facilitating carry-backward of the business losses to the preceding three-four years may be introduced in the I-T Act to assist companies which have become temporarily sick
• Relax small-scale industry restrictions to permit larger, more efficient player to enter these sectors
• Multiple licences/clearances required to be undertaken for retail operations should be eliminated and all clearances should be required to be taken at one time only
• All inter-state levies should be abolished and the maximum tax rate in any case under the new goods and services tax system should not exceed 20%
-------------------------------------------------------- (Source: Assocham)
Expert View | Prashant Khatorer
The retail sector accounts for at least 10% of the gross domestic product and 8% of the total employment. In order to encourage the sector, FDI norms in single-brand retail should be liberalized and FDI in multi-brand should be opened in a phased manner. The government should also come out with a specific clarification on applicability of press notes 2, 3 and 4 of 2009 for the retail sector. The retail players are in constant need of funds that in the current scenario are not readily available. The government should open up the ECB route to tackle this. Also, in order to encourage consolidation, the government should also extend the tax benefits under section 72A of the I-T Act for carry-forward and setting off of loss on amalgamation to retail players. Service tax on renting of immovable property should be abolished as it increases the cost of retail operations and, in turn, further squeezes the thin margins at which the retail players are working. Retail should be given an industry status to facilitate provision of various fiscal incentives.
Textile | Industry Wish List
• Rationalization of inverted duty structure on raw materials/intermediates of synthetic fibres and yarns
• Exemption from levy of special additional customs duty under section 3 (5) of Customs Tariff Act on raw materials
• Exemption/concessional rate of excise/customs duty on import of textile machinery and equipment
• Restoration of 4% interest subvention scheme under Technology Upgradation Fund
• For polyester sector, amount of accumulated National Calamity Contingency. Duty to be allowed to be utilized against payment of excise duty
• Procedural relaxation on refund of terminal excise duty on procurement of capital goods
• Expansion of Focus Market Scheme (FMS) to all countries where export performance is 5% or less of total volume of exports and expansion of FMS to export of silk/woollen garments
Expert View | B. Sriram
For various reasons, the Indian textile industry has inherited unique features such as fragmentation, absence of economies of scales, geographically dispersed set-up, and so on. These features results in not only cost inefficiencies, but also tax inefficiencies at different levels due to cascading of taxes.
The need of the hour is to make the textile exporter competitive in the global market by providing a dynamic and robust export incentive scheme, which should be capable of providing incentives to neutralize every form of tax costs that are embedded in the export products. Also, the differential treatment of excise duty in respect of EOUs unit vis-à-vis a normal unit in respect of domestic sales should be addressed. Some areas that would require special attention of the finance minister is relating to accumulated Central value added tax credit (because of the inverted duty structures) and mechanism to eliminate the cost of special additional duty of 4% due to the inability of the units, which opts for zero duty regime. It is also the expectation of the man-made fibre manufacturers to be aligned with that of cotton as regards excise duty rates.
Telecom | Industry Wish List
• Need to lower taxes and levies that amount to 30% of telecom operator revenues
•Extension of tax holiday under section 80IA for third-generation (3G) services
• Tax holiday for undertakings transferred in a scheme of amalgamation/demerger
• Exemption of special additional duty for imported network equipment
• Early implementation of goods and services tax
Expert View | Vishal Malhotra
The telecom sector has been affected to an extent by the global slowdown. However, it is not a cause for worry. Telecom operators have been adding some 10 million new subscribers for the past few months. With at least 440 million subscribers already, India will achieve the target of 500 million subscribers ahead of the 2010 deadline.
Currently, operators pay close to 30% of their revenues to the government in the form of taxes and levies. Reducing the levies and taxes will help telecom operators to extend services in rural India faster. Setting up a 3G network involves huge capital expenditure. It should be considered as a separate undertaking and 100% tax holiday granted under Section 80IA. This will ensure a quicker roll-out of 3G services across India. The Finance Act, 2007, amended section 80IA such that undertakings transferred under an amalgamation/demerger are not eligible for tax holiday. This should be reconsidered as it is a retrograde step and has acted as a deterrent for consolidation. Every aspect of telecom is under the service tax net now. Any service provided by a telecom operator would be liable to service tax including infrastructure sharing, interconnect usage charges and transfer/assignment of right to use telecom capacity. The tax authorities (both VAT and service tax) in multiple instances have sought to recover both VAT and service tax on a single transaction. A unified tax, i.e., the goods and services tax, should be implemented at the earliest to relieve the industry from the present tax complexity.
Education | Industry Wish List
• Streamline the regulatory framework to avoid multiple overlap of functions between regulatory agencies
• Introduce a single autonomous regulatory agency (a “super regulator”) in line with recommendations of the National Knowledge Commission (NKC)
• Take steps to further facilitate the entry of private sector capital to bridge the funding and supply gaps faced in the primary and higher education sectors
• Introduce models for public-private partnerships to improve efficiency and to promote higher education in India
• Introduce policies to encourage corporate sector participation for research projects through joint R&D and sponsored research programmes
• Approve pending Bills such as the Foreign Educational Institutions Bill, 2007, which will allow entry of world-class universities and lead to excellence in India
Expert View | Riad Joseph
Despite nearly a tenfold increase in higher education spend of Rs85,000 crore in the 11th Plan, the Planning Commission has identified a resource gap of Rs2.2 trillion to achieve its target of setting up new colleges and institutions. This funding and supply gap may be bridged through the continued involvement of the private sector and the entry of foreign educational institutions. The government should put forward clear policy and regulatory reforms such as the introduction of public-private partnership models, introduction of a transparent regulatory framework to approve private institutions (deemed universities and state universities), enactment of the Foreign Educational Institutions Bill, etc. The regulatory framework must be simplified with multiple and overlapping regulations replaced with simple clearer rules with fewer regulators. The NKC recommendation of establishing a single independent authority for higher education would be a step in the right direction. The government may also want to imbibe global best practices such as creation of education hubs and knowledge villages such as in Singapore and Dubai and development of research universities in line with the US model.
Oil and Gas | Industry Wish List
• Clarity on tax holiday on production of natural gas
• Tax holiday for city gas distribution sector
• Abolition of MAT on exploration and production companies
• Abolition of service tax on mining services
• Streamlining excise duties on petrol and diesel from the current ad valorem-cum-specific rates to only specific rates as recommended by the C. Rangarajan committee.
Expert View | Vijay Iyer
Upstream companies will be looking forward to a clarification on availability of a tax holiday for production of natural gas. This will also have a positive impact on the global upstream companies that may consider bidding under the proposed eighth round of New Exploration and Licensing Policy. Further, deregulation of pricing of petroleum products is also eagerly awaited by oil marketing companies, which have been badly hit because of the volatile price of crude oil.
Some of the other items on the wish list of the industry are grant of infrastructure status, removal of MAT and abolition of service tax.
Media and Entertainment | Industry Wish List
• Income-tax exemption, currently, provided to venture capital funds, should be extended to media and entertainment firms
• Extend the income-tax holiday currently available under STPI scheme beyond 31 March to boost the expansion of the Indian animation industry
• Reintroduce the tax holiday under section 80IB of the I-T Act for construction, maintenance and operation of multiplexes
• Grant exemption from levy of service tax on licensing of trademarks for film-related merchandise, since such transactions are already subject to VAT.
• Extend the customs duty exemption, currently granted for import of content on cinematographic films, to content which is imported on all other media
• Grant service tax exemption on post-production services rendered by Indian service providers to foreign studios
Expert View | Jaideep Kulkarni
The Indian media and entertainment industry has shown tremendous growth over the past few years. In the current adverse economic scenario, the industry is looking at the finance minister to bring in key policy changes and fiscal incentives to provide much-needed impetus for sustaining this growth.
The Indian animation industry requires the extension of the income-tax holiday, currently granted under the STPI scheme, beyond 31 March to sustain its growth and to enable it to compete effectively with more matured foreign players. To give a fillip to merger and acquisition activity in this industry, the finance minister should bring in clarifications to enable unabsorbed losses and depreciation of targets which are acquired through amalgamations or demergers to be carried forward by the acquirer. The income-tax exemption currently available to venture capital funds on their income from investments should be extended to investments made in the media and entertainment industry. Another area that needs clarification and guidance is the taxation of foreign telecasting companies, which has been a subject matter of intense litigation.
On the indirect tax front, the industry needs relief from the levy of service tax on cable subscription charges as such charges are already subject to state entertainment tax. The ambiguity on the availability of customs duty exemption for import of content on Betacam tapes/masters should also be clarified.