Tax Breaks, Hike In Toll Fees For Highway Projects

Surface transport minister T G Venkatraman yesterday announced a new set of incentives to spur private investment in the highway sector, including income tax concession on profits from real estate income and customs duty exemption on equipment import.

Among the other concessions are government grants upto 40 per cent of the capital cost, extension of tax holiday benefits from 12 to 20 years, capping of toll rates in respect of four-lanes, and the exemption of expressways, major bridges, new bypasses, tunnels etc from toll ceilings, which would be decided through competitive biddings.

The ministry has, however, rejected the demand of investors to evolve a separate mechanism to protect foreign equity and borrowings against the vagaries of exchange rate variations.

 

As the director general for road development in the ministry, A D Narain, explained, the government is already allowing the indexing of the toll rates to the whole sale price index which is subject to revisions every three years. He felt that this would take care of the exchange rate fluctuation risks.

Besides, the government is already allowing external commercial borrowings to the extent of 35 per cent of the project cost and, in addition, has permitted upto 74 per cent direct foreign investment in the equity. Narain said that, apart from this, since foreign lending was much cheaper, foreign investors therefore need not be worried about the coverage of risks in the event of exchange risk fluctuations.

The new policy initiatives were cleared by the cabinet committee on infrastructure on Monday. Announcing the new incentives package at a press conference, the surface transport minister stated that a new policy initiative was imperative for the rapid growth of the economy but keeping in view that the government was resource constrained, the response from the private sector thus far was not encouraging.

He clarified that tax concessions for real estate development along the highways would be available only on that portion of profit which the promoter ploughed into highway development. By and large, this may prove to be fairly attractive proposition because while the highway projects are to be allotted on build, operate and transfer for a concession period of upto 30 years only, the real estate properties would become the property of the developers forever.

Besides, it is the government which will acquire the land for the purpose just as it would do in the case of land for highway development and so real estate land would also enjoy immunity from judicial review, as is the case in respect of land acquired for highway development. This may give a big boost to the development of housing complexes as a byproduct of the development of the road sector.

Further, the government has allowed an outright grant of up to 40 per cent of the capital cost which would be in addition to the existing provision of upto

30 per cent equity participation by it. Both benefits may be accorded to the same project if it is so required, depending on the merit of the case.

Under the new policy initiative, the government has also fixed the ceilings for the toll rates to be levied on users of the new four-laned highways.

These work out to Rs 0.40 per km for car, jeeps and vans; Rs 0.70 per km for light commercial vehicles; Rs 1.40 per km for trucks and buses; and Rs 3 per km for heavy construction machinery.

The ministry has been authorised by the government to fix higher rates for expressways, major bridges, new bypasses, tunnels etc., on the basis of bids received from investors.

A committee is examining whether it is necessary to set up a regulatory authority for the highway projects.

On the issue of protection against the risks of foreign exchange rate fluctuations, the issue may be taken up in the US during the forthcoming eight-day visit of Yogendra Narain, secretary, surface transport ministry, who will woo private investment in the highway sector as part of a high-level official delegation.