Budget 2016: Lack of funding, over-leveraged balance sheets, slow regulatory and government clearances, many disputes pending in arbitration, etc, are few problems the infrastructure space is grappling with. This year, it is expected that finance minister would draw a policy to set up an ‘infrastructure adjudication tribunal’ to hear all infra-related litigations or would attempt to revive stalled infrastructure projects by providing single window clearances.
Budget 2016 is likely to announce the scheduled phase-out of corporate tax exemptions and reduction in corporate tax rates from 30% to 25%. Though the intention is to eliminate all exemption provisions, the government is open to evaluate and extend such benefit on case-to-case basis. The infrastructure sector is a fit case to get the exemption due to longer gestation periods. The government is currently reviewing the model of permitting infra companies to file consolidated group tax returns, i.e., consolidate profits and losses of their subsidiaries/special purpose vehicle and pay taxes as one single entity.
Reserve Bank of India has also recently introduced masala bonds, i.e, rupee-denominated overseas bonds. To boost funding in infrastructure sector, lower withholding of taxes @ 5% on interest income from masala bonds (which will be the final tax) and the exemption on certain related capital gains has been announced. Suitable amendments to this effect are likely to be introduced in this budget.
The government plans to set up a guarantor for corporate bonds to catalyse the bond market for infrastructure. It is likely to announce the Bond Guarantee Fund of India (BGFI) to complement the National Investment and Infrastructure Fund set up last year. The BGFI will underwrite bonds issued by both public and private sector companies in order to enhance their ratings to attract investments from insurers. This will help in developing both greenfield and brownfield projects, including stalled ones.
This budget will also likely announce amendments in tax laws to give effect to action plans recommended in Base Erosion and Profit Shifting (BEPS) report. If these provisions are enacted in the budget, all companies, including infra ones, will have to relook at their existing structures. Power, being one of the key sectors, requires huge investment in near future in view of the overall power shortage the economy is facing. It is suggested that both fiscal and non-fiscal measures to be taken to prop up solar projects and create an effective eco-system for making solar power a sustainable source of energy in the country. The Budget may offer incentives for solar power plants with a capacity to generate 3,000 MW or more to boost efforts to raise the country’s solar power generation capacity by five times to 1,00,000 MW by 2022.
The infrastructure sector is looking forward to the government for the required fiscal impetus and policy support for the macro economic growth. Time is running out and, if some bold reforms are not taken for infrastructure sector, the government may not meet its ambitious growth targets before the next election.
Co-authored with Jimit Devani, director, and Archita Modi, deputy manager, Deloitte Haskins and Sells LLP. The author is partner, Deloitte Haskins and Sells LLP.
Views are personal