Parthasarathy Shome, advisor to the finance minister, told businessmen here at a conference organised by industry chamber Ficci that demanding more sectors to be classified as infrastructure would actually go against the philosophy of widening the taxpayer base and lowering the rates. If you are of the opinion that the taxbase should become narrower (by defining more sectors as infrastructure), then the argument for lowering the headline rates becomes sort of less saleable when revenue is also a criterion, Shome said.
The revenue implications of income tax holiday for infrastructure firms falls on non-infrastructure sectors as the tax department will have to depend on them more for revenue since the tax base is finite. Now sectors like power, laying of transmission networks, building of road, bridges, ports and telecom, internet and domestic satellite services get full income tax break for ten years under section 80IA of the Income Tax Act. Industrial undertakings get 25% tax break for 10 years. Besides, many other businesses such as setting up of housing projects, hotels and convention centres in specified areas get partial or full income tax breaks for specified number of years. Still there is clamour from more sectors for infrastructure status.
Shome's suggestion is also in line with the government's intention to move away from profit-linked tax breaks to investment-related tax breaks that may directly help in more capital flowing into the economy.
If we really confine the definition of infrastructure to major path breaking areas where India is entering in a global manner anew, then the meaning and implication of infrastructure would have a much bigger impact, Shome said, adding that he was merely bringing the issue to the attention of businessmen and was not referring to any policy decisions in the union budget for next fiscal.
Shome said the government is intensely working on the Direct Tax Code and and is trying to see what all steps could be adopted to bring the best in terms of transparency and facilitation in tax returns. Hopefully we will come up with a modified DTC in response to the Parliamentary Committee's suggestions, he said.
Shome also said the government could consider opening up the services sector more as India has a services account surplus like the US, which unlike India, is opening up its services sector for foreign competition. Opening up the sector would bring in more efficiency, Shome said. More expenditure efficiency is another objective the government is striving to achieve.