Union Budget 2020 India: Exemptions for sovereign wealth funds, which are conditional upon a 3-year lock-in period, could spur investments in a big way in the roads sector, an expert said.
By Anwesha Ganguly
Union Budget 2020 India: Tax sops announced in the Budget are expected to boost investment into the cash-strapped infrastructure sector, industry players said. The government on Saturday announced 100% tax exemption on long-term capital gains, dividend and interest on investment into infrastructure made by sovereign wealth funds (SWFs). It also brought tax treatment of unlisted infrastructure investment trusts (InvITs) at par with listed ones. The roads sector may significantly benefit from the announcements.
SWFs, including Singapore’s GIC, Abu Dhabi Investment Authority (ADIA) and Qatar Investment Authority, have made several investment commitments for infrastructure projects in India. Last year alone saw four major investment announcements by SWFs. ADIA, along with the NIIF and another investor, committed to buy a 49% stake in GVK Airport Holdings, which runs the Mumbai airport. GIC, in partnership with the Tata Group and another investor, will invest Rs 8,000 crore into GMR Airports, which runs India’s busiest airport in New Delhi.
In the roads sector, IRB Infrastructure Developers last year signed a Rs 4,400-crore deal with GIC. GIC, along with private equity player KKR, committed a Rs 2,000-crore investment into Sterlite Power’s InvIT, IndiGrid.
Exemptions for SWF which are conditional upon a three-year lock-in period, could “spur investments in a big way,” in the roads sector, said Virendra D Mhaiskar, chairman and managing director, IRB Infrastructure Developers. “Tax exemptions to sovereign wealth funds will help restore their confidence. Interest in funding BOT or TOT projects would be humongous,” Mhaiskar said. GIC has already invested around Rs 750 crore into IRB’s projects.
The exemptions, which are applicable for investments made on or before March 2024, will help draw sovereign investors for upcoming projects, Mhaiskar said. However, private players or foreign pension funds like the Canada Pension Plan Investment Board may feel left out. “The proposal of tax exemption to sovereign funds for investments in infrastructure has a bite in its tail. As per the definition, many of the large institutional investors active in India today will not qualify such as pension plans or investment arms of various governments, as these entities do not qualify as ‘specified persons’ under Section 10 (23FE),” said Shagoofa Rashid Khan, partner, Cyril Amarchand Mangaldas.
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Another change made in the Budget fine print is that unlisted InvITs would be treated at par with listed one with effect from the next financial year. Listed InvITs already enjoy tax pass-through benefits on income earned by business trusts.
“(It) would be very good for our private listed InvIT platform with GIC affiliates… the beneficial tax regime which was earlier available to listed InvITs, has now been extended to private unlisted trusts regulated by Sebi. This does away with the need to list these trusts and will help operations significantly,” Mhaiskar said.
The tax treatment rationalisation is also likely to pique private investment interest into roads and other infrastructure projects.