|
| India Inc: Win some, lose some |
| BS Reporter / Jul 07, 2009, 00:32 IST |
|
Industry welcomes abolition of FBT, but rues proposal to raise MAT.
India Inc is glad to have finally bid goodbye to fringe benefit tax (FBT), viewed unanimously as an irritant, that will save it around Rs 2,000 crore a year. While the Budget proposes to do away with the levy, the proposal to increase the minimum alternate tax (MAT) from 10 per cent to15 per cent on book profits — close to 17 per cent with the surcharge — has cast a gloom on the corporate sector.
The move on MAT is expected to earn the exchequer an estimated Rs 3,000 crore in the current year. However, companies have three more years to carry forward the tax credit, since the period for doing that has been extended from seven to 10 years. In 2008-09, around 500 companies were estimated to have paid tax at a rate less than 15 per cent.
Reliance Industries, Bharti Airtel, NTPC, Tata Consultancy Services, Reliance Communications and Infosys Technologies will see their tax burden increase by at least Rs 100-500 crore in FY10. Reliance, which paid a tax of Rs 2,074 crore (11.95 per cent of PBT) in 2008-09, will have to pay an additional Rs 529 crore if the company maintains its net profit of the last financial year.
Bharat Doshi, finance director at Mahindra and Mahindra (M&M), said since companies in investment mode normally paid MAT, the increase was a bit of a disincentive for companies. YM Deosthalee, group CFO, Larsen and Toubro, pointed out that while the increase in MAT might not be such a big issue, some infrastructure projects could have been spared.
R Seshasayee, managing director, Ashok Leyland, however, felt that the increase was justified. “There is always some kind of a withholding tax that is levied on any enterprise and it’s only fair that the government gets a return,” he said.
All three, however, were relieved that the FBT had been done away with. “The FBT was an ambiguous and arbitrary levy that resulted in unproductive expenditure and it’s good that it’s been scrapped,” Seshasayee added. Listed companies in the country are estimated to have paid out Rs 2,100 last year in the form of FBT.
Corporate India is also relieved that there has been no increase in the corporation tax or the surcharge. While the Budget may not have brought it too many goodies, Indian industry will not have to contend with any change in the customs and excise duty structure, which has been left largely unchanged. That, according to Amit Burman, vice-chairman Dabur India is a good move.
“The fact that excise duties haven’t been increased is a big positive and will help stimulate demand, which has been looking up,” he said. Besides, the government has promised that the Goods and Services Tax (GST) will be in place by April next year, which again should make life easier for manufacturers and service providers. Doshi said, “It’s good that the government is sticking to its timelines. One hopes the discussions with the state progress smoothly.”
While Bharat Forge Chairman Baba Kalyani too lauded the rural spends, he was disappointed that there was nothing in the Budget for exporters. As far as sector-specific benefits are concerned, the IT space has gained from the extension of sections 10(a) and 10(b); companies can enjoy the tax holiday for another year till March 2011.
However, for most software technology parks (STP), the tax holidays would have ended. The tax holiday on section 80(IB)(9), which was so far available in respect of profits arising from the commercial production or refining of mineral oils, has been extended to natural gas.
Indian industry should also stand to gain from the huge government outlays on rural development schemes and infrastructure projects — the Rs 100,000 crore takeout financing by IIFCL is not a small number. Doshi said, “Spending on infrastructure as also the enhanced credit to the agricultural sector will no doubt create demand in the rural markets, which is important because it’s these markets that are driving the Indian economy.” Besides, the government has upped the outlays for a host of rural schemes such as the NREGA.
The higher allocations for these schemes, Burman said, should increase demand in the hinterland over time. If the government does manage to create the 12 million jobs a year, that alone will create a whole new consumer base. Makers of FMCG products and durables are welcoming the extra money that the finance minister has put in the hands of individuals by raising the income tax exemption limit and removing the 10 per cent surcharge.
They pointed out that while the Rs 70,000 crore fiscal stimulus package rolled out by the government late last year and earlier this year helped sustain demand, the surplus in consumers hand will help them maintain spends at a time when food inflation is high.
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
|
Content Guide
