pre-budget expectations 2013-14

PRE-BUDGET EXPECTATIONS2013-14

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For discussions only – Tentative & Preliminaryprovided on request not for circulation

CONTENTS

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Industry Page No.Infrastructure 05Steel and Other related products 17Non Ferrous Materials 20Power 23

Real Estate and Housing 27

Oil & Gas 31Civil Aviation 35Travel & Tourism 41Entertainment 44Retail 49Textiles & Apparels 53Information Technology 57Agriculture 59Healthcare 64Education 69Chemicals & Petrochemicals 73

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Abbreviation Glossary Abbreviation Glossary

AAI Airports Authority of India DTH Direct to Home

AOP Association of Persons DTY Draw Texturized Yarn

BCAS Bureau of Civil Aviation Security E & P Exploration and Production

BCD Basic Customs Duty ECB External Commercial Borrowings

BOT Build Operate Transfer EDC Ethylene Dichloride

C &D Construction and Demolition EHR Electronic Health Record

CCR Cenvat Credit Rules, 2004 EPCG Export Promotion of Capital Goods

CCTV Closed Circuit Television EU European Union

CISF Central Industrial Security Force Excise Act Central Excise Act, 1944

Companies Act Companies Act, 1956 Excise Tariff Act Central Excise Tariff Act, 1985

CST Act Central Sales Tax Act, 1956 Finance Act Finance Act, 1994

CTH Customs Tariff Heading FTP Foreign Trade Policy, 2009-2014

Customs Tariff Act Customs Tariff Act, 1975 DGFT Director General of Foreign Trade

CVD Countervailing Duty GDP Gross Domestic Product

DGCA Directorate General of Civil Aviation GST Goods and Services Tax

DGFT Director General of Foreign Trade GW Giga Watt

DRI Direct Reduced Iron HBI Hot-briquetted iron

GLOSSARY OF TERMS

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Abbreviation Glossary Abbreviation Glossary

ICAR Indian Council of Agricultural Research PPP Public Private Partnership

IT Income Tax PSF Passenger Service Fee

IT Act Income Tax Act, 1961 PVC Polyvinyl Chloride

LNG Liquefied Natural Gas R & D Research and Development

MAT Minimum Alternate Tax SAD Special Additional Duty

MRO Maintenance Repair and Overhaul SEZ Special Economic Zone

MRP Market Retail Price SPV Special Purpose Vehicle

NCCD National Calamity Contingent Duty STB Set Top Box

NG Natural Gas TDS Tax Deduction at Source

NHAI National Highway Authority of India TEHS Technology Enabled Healthcare Services

NHEFC National Higher Education Finance Corporation

Valuation Rules Service Tax (Determination of Value) Rules, 2006

NSG National Security Guards VAT Value Added Tax

PAN Permanent Account Number VCM Vinyl Chloride Monomer

PCI Pulverized Coal Injection - -

POTR Point of Taxation Rules, 2011 - -

POY Partially Oriented Yarn - -

GLOSSARY OF TERMS

INFRASTRUCTURE

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INFRASTRUCTURE

Industry background

S. No. Issue Statutory provision

Expectations

1. Exemption from excise duty is only given to goods that are fabricated at site of work. Some of the fabricated structures need specialized testing, galvanizing and other technical treatments before erection of the fabricated structure at site

Notification No. 12/2012-CE dated March 17, 2012

A clarification be issued providing that goods may be moved back and forth for such processes from site of work

2. Exemption from excise duty for concrete mix made at site – Site not to have restrictive meaning

Notification No. 12/2012-CE dated March 17, 2012

Liberal meaning to be given to the term ‘site’

3. C&D waste management projects are expensive on account of excise duty levied on inputs

- Excise duty exemption for inputs and products made from recycled C&D waste

4. High excise duty on cement - Reduction in rate of excise duty on cement


The construction sector has recorded a growth of 10.9 percent in the first quarter of the financial year 2012-2013 as compared to 4.8 percent in the subsequent part of the financial year

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INFRASTRUCTURE


Expectations

Exemption from service tax to following construction activities provided under Mega Exemption Notification No. 25/2012 dated June 20, 2012

5. Construction of civil structure meant predominantly for use as (i) an educational (ii) a clinical or (iii) or an art or cultural establishment for a Government/local authority

Sr. No. 12(c) of Mega Exemption Notification

Exemption list of civil structure should be widened to include construction services provided to other than Government or local bodies

6. Canal, dam or other irrigation works done for agencies other than the Government

Sr. No. 12(d) of Mega Exemption Notification

Services of such nature rendered to entities other than Government must also be exempt

7. Construction of pipes, conduit for drinking water supply, sewerage treatment

Sr. No. 12(e) of Mega Exemption Notification

Services of such nature rendered to entities other than Government must also be exempt

8. Construction, erection, commissioning, installation, completion, fitting out, repair, maintenance etc. of road, tunnel etc., for general use

Sr. No. 13(a) of Mega Exemption Notification

All infrastructure projects like construction of roads, bridges etc., be clarified as meant for general use. Also include management of roads


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INFRASTRUCTURE


Expectations


9. Exemption granted to construction, commissioning , installation of original works etc., in relation to rail, port, airport. However, maintenance renovation alteration not covered as against the definition of original works where such activities are covered

Sr. No. 14(a) of Mega Exemption Notification

Extend exemption to such services

10. Construction of single residential unit otherwise as a part of a residential complex is exempt from service tax. The exemption limiting the number of units to single dwelling is not reasonable

Sr. No. 14(b) of Mega Exemption Notification

To avoid tax burden on residential complex built up to 12 dwelling units, service tax may be exempted

11. Whether the exemption would be available even when only the labor portion is sub contracted

Sr. No. 29(h) of Mega Exemption Notification

Clarification be issued to such effect

12. Site formation services undertaken if provided in the course of construction of road, airports, railways, transport terminals, bridges, tunnels, dams, etc.

- Exemption from payment of service tax must be extended to site formation services


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INFRASTRUCTURE


Expectations


13. Exemption to be extended to construction of residential quarters for staff at site be exempted from purview of service tax

Sr. No. 12(f) of Mega Exemption Notification

Extend exemption to such services whether extended to government or otherwise

Others

14. Recipient based liability in case of works contract services and supply of manpower services

Notification No. 30/2012-dated June 20, 2012

Liability may be that of service provider or service recipient in full for administrative convenience

15. Joint Ventures form an AOP and thus the liability to pay service tax is distributed between service provider and service recipient. This leads to a problem of accumulated credit (Works contract services)

Notification No. 30/2012-dated June 20, 2012

A blanket exemption from service tax on reverse charge mechanism is required to be made effective since inception so as to do away with the problem of accumulated cenvat credit

16. Service by way of access to a road or a bridge on payment of toll charges – exempted. However, other than toll other consideration such as annuity, grant, user fees etc., may be received by Concessionaire for management of roads from NHAI/ users

Sr. No. (h) of Section 66E of Finance Act

All such considerations must be exempt


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INFRASTRUCTURE


Expectations

17. Methods of valuation of a works contract Rule 2A of Valuation Rules

Suitable amendment be carried out to confirm that the Tax payer is allowed to exercise any of the options

18. Value of services would include amount realized as liquidated damages, demurrage

Rule 6 of Valuation Rules

Liquidated damages, demurrage charges etc. ,must not be included in the value of taxable services

19. Service tax applicability of operating leases Section 66E(f) of Finance Act

All leases liable to VAT would not be liable to service tax

20. Mobilization advance is released against bank guarantee and subject to payment of interest. The advance is deducted periodically and proportionately from the gross bill amount but the service is paid on the gross amount

- Clarification is required to be issued to specifically exclude mobilization advance from service tax with a condition that if the advance is release against bank guarantee and payment of interest and the assessee is paying service tax on the gross amount


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INFRASTRUCTURE


Expectations

21. Point of taxation in case of running bills given the progressive billing that is followed in construction industry

POTR Point of taxation should arise after due certification of bills by engineers etc

22. Construction of Complex-Valuation Mechanism - Tax may be allowed to be paid as per composition scheme

23. Credit of construction services not available even where construction services are integral to provision of service

CCR Restriction on availment of cenvat credit to be removed in such cases

24. No credit in respect of capital goods exclusively used in non taxable services

Rule 6(4) of CCR Credit be allowed when goods are first used in non taxable and subsequently used in taxable services

25. Clarification on import of construction equipment under project imports. The construction equipment that may be permitted to be transferred to other registered project under CTH 9801, after completion of its intended use

Circular No.49/2011 dated November 4, 2011

The contractor is allowed to import and use the auxiliary equipment for a particular project, the contractor may be allowed to withdraw the equipment from the site on production of project completion certificate from the project authority and the contractor should be free to utilize such equipment in any other projects


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INFRASTRUCTURE


Expectations

26. Technology for low cost housing (such as aluminium formwork or precast technology) Customs duty/ taxes paid for importing these technologies vary in the range of 20-25 percent

- Reduce customs duty on such technologies

27. Financing to airport operators - Airport operators to be allowed to issue infrastructure bonds

28. Concessional CST levy for purchase of plant & machinery, tools etc., as available to manufacturers

Section 8 (3) (b) read with 8 (4) of the CST Act

Suitable amendment be made

29. Exemption for sale in the course of inter-state trade to a registered dealer for setting up, operation, maintenance, manufacture, trading, processing, etc., in a Unit located in any SEZ or for development, operation and maintenance of SEZ by the developer of the SEZ

Section 8(6) of the CST Act

Contractors/Vendors to SEZ to be able to issue

30. Given that the value of contract in some states is as high as 70 percent and under service tax construction contracts value is 40 percent , total value of works contract is 110 percent

- Valuation Rules be amended so as to provide a uniform rate, between 10 percent and 15 percent, for arriving at the value of service portion for all kind of works contracts


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INFRASTRUCTURE


Expectations

31. Stock transfer-Project execution may require mobilization of machinery, equipments etc.

Section 6A of CST Act

Do away with the procedural requirement of providing a declaration to the effect that the Plant & machinery under movement is not for sale and be brought back or taken back by the dealer- contractor

32. Applicability of taxes on infrastructure. Currently , road construction is exempted from service tax liability but VAT is applicable

- There should be exemption for project works related to infrastructure

33. TDS in construction industries. Employer should not deduct tax from payments made to contractor when contractor has given work to sub-contractor. It causes unnecessary process and documentation for claiming such refunds from department as there is no tax payable by contractor

- Take suitable steps

34. High rate of sales tax for cement Section 14 of the CST Act

Classify cement as a declared good

35. No level playing field provided to domestic and foreign cement industry

- • Levy customs duty on imports• Exempt inputs of cement from customs

duty


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INFRASTRUCTURE


Expectations

36. Tax deduction at source Section 194C of IT Act

• Companies having a share capital of 5 crore plus be excluded from the compliance of Section 194C of the Income Tax Act, 1961

• Reduce administrative pressure to obtain lower withholding certificate under Section 197 of the IT Act

37. Increase in cost on account of MAT - Provision may be reconsidered

38. Higher depreciation as available in case of power/manufacture sector to be extended to construction sector

- Higher depreciation at the rate 20 percent on cost of new plant and machinery

39. Current MAT rate quite high Section 115JB of IT Act

Rate be brought down from 19.93 percent to 7.50 percent

40. Do away with the requirement of PAN for non residents Section 206AA of IT Act

Tax residency certificate should suffice against PAN


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INFRASTRUCTURE


Expectations

41. Set off to the loss of members in case of an AOP being denied

Section 61 of IT Act Clarification by way of an amendment may be made so that the loss is not disallowed

42. The member’s share in the income of the AOP is taxed separately in the hands of AOP joint venture. Such income when credited to the profit and loss account in the books of corporate member, is subjected to tax again under section 115JB of the Act

Section 115JB of IT Act

It is suggested that definition of book profits under section 115JB be amended to exclude the member’s share in income (including loss) of AOP

43. Section 115JB has an overriding effect over provisions of Section 90(2) thus creating an obstacle for claiming benefit of the treaty


Provision be amended not to have an overriding effect

44. Setting off loss to an amalgamating company Section 72A of IT Act

Clarify that construction companies fall under the definition of industrial undertaking

Alternatively, the word “industrial undertaking” may be replaced by the word “business unit” in clause (a) of section 72A (1) of the IT Act

45. Road widening –BOT Models (Toll charges are used to subsidize cost of construction)

- Toll charges collected during the construction phase should not be treated as income and should be allowed to be set off against cost of asset


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INFRASTRUCTURE


Expectations

46. Section 115JB of the IT Act has an overriding effect over provisions of Section 90(2) of IT Act thus creating an obstacle for claiming benefit of the treaty


Provision be amended not to have an overriding effect

47. Deductions provided to infrastructure Section 80IA of IT Act

• Include existing infrastructure for the purposes of deduction

• Include various support services under the ambit

• MAT should also be allowed as a deduction

48. Amortization of development cost to be allowed in the hands of the developers under PPP model/BOT model

- A section similar to Section 35ABB (amortization of development cost in hands of telecom operators ) be introduced

49. In respect of BOT models ownership of asset vests with the Government

Section 32 of the CST Act

Right to collect toll charges should be treated as an intangible asset and therefore depreciation should be available in respect of the same


STEEL & OTHER RELATED PRODUCTS

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STEEL & OTHER RELATED METALS

Industry background


Expectations

1. • Crucible swelling No. and swelling index of coal, provided under Notification No. 12/2012- Customs dated March 17, 2012 for availing exemption from customs duty, is highly technical and labs are not well equipped to test these parameters

• Ambiguity as to whether coal used in the manufacturing of steel using Corex, Finex or PCI is covered under said entry

Notification No. 12/2012- Customs dated March 17, 2012

Entry at S. No. 122 in the said notification should be amended to include all coal used in manufacture of iron and steel irrespective of the technology used

2. Increase in steel production has led to the increase in the demand for steel grade limestone and dolomite

- Custom duty on the said products should be reduced from 5 percent to nil


The National Steel Policy 2005 had envisaged steel production to reach 110 million tonnes by 2019-20. However, based on the assessment of the current ongoing projects, both in greenfield and brownfield, the Working Group on Steel for the 12th Plan has projected that the crude steel capacity in the county is likely to be 140 mt by 2016-17 and has the potential to reach 149 mt if all requirements are adequately met

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STEEL & OTHER RELATED METALS


Expectations

3. Insufficient domestic capacity to manufacture graphite electrodes and refractory materials. Import duty on these items increases the domestic cost of the producers

- The import duty on the said products should be reduced to nil

4. Threat to domestic sponge industry due to sharp increase in imports of hot-briquetted iron /direct reduced iron from Middle East countries

- The import duty on ferrous products obtained by direct reduction of iron ore to be increased from 5 percent to 10 percent

5. Due to zero percent duty on goods cleared under EPGC license and 5 percent duty on project import, importers are opting for EPCG license, even though the said EPCG license has an added export obligation

- Duty on project import should be reduced from 5 percent to 2 percent

6. The high price of LNG is making gas based steel manufacturing unviable

- LNG used for the manufacture of steel should be fully exempted from custom duty

7. Rampant import of stainless steel flats from China & EU, has an adverse effect on the domestic stainless steel industry

- BCD on stainless steel flats should be increased from 5 percent to 15 percent


NON FERROUS METALS

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NON FERROUS METALS


Expectations

1. The aluminum industry facing threat due to sharp increase in the import of aluminum products

- Increase in the BCD on aluminum products from 5 percent to 10 percent

2. • Import duty on the aluminum scrap is less than the import duty on the aluminum products

• Aluminum scrap import causes immense harm to the aluminum industry as primary aluminum can be used interchangeably with most aluminum downstream products

- BCD on aluminum scrap needs to be raised and brought at par with the duty on aluminum products

3. Domestic need of bauxite in alumina refineries threatened due to sharp increase in export of bauxite to countries like China

- Increase in the export duty on bauxite is expected

4. Gold and silver content in copper concentrate suffers from additional customs duty and countervailing duty unlike import of gold in pure form

- Exempt gold and silver content in copper concentrate from additional customs duty and countervailing duty, reduce financing burden on copper industry

5. Aluminum should be available at an affordable price, to remove use of environment threatening products like plastic and wood

- Excise duty on aluminum extrusions be reduced from 12 percent to 8 percent


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NON FERROUS METALS


Expectations

6. Due to high customs and central excise duty levy on aluminum metal, the farming community in India has shifted from aluminum extruded agricultural pipes to the cheaper PVC pipes

- Excise duty exemption to agricultural pipes and tubes used for irrigation purposes

7. Coal tar pitch, critical raw material for the manufacturing of aluminum has high BCD. This substantially increases the cost of production of aluminum

- BCD on coal tar pitch should be reduced from 10 percent to 5 percent

8. Aluminum should be available at affordable prices, to remove use of environment threatening products like plastic and wood

- Excise duty on aluminum extrusions be reduced from 12 percent to 8 percent


POWER

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POWER

Industry background


Expectations

1. There continues to be a power shortage in the country. Power generation and distribution is required to be improved including importing power from outside India

- • The power imported from outside India should be imported under an Open General License to tap power generation in neighboring countries. Cross border transmission links should be improved

• Nil power duty on the power imported from Nepal should be continued over the duration of the Power Purchase Agreement

2. Directive of the Mega Power Policy provides for tie-up of power within three years from date of issuance of provisional mega power project certificate

Mega Power Policy The Mega Power Policy should provide for tie-up of power within three years from the commencement of supply of coal under the Fuel Supply Agreement


The overall power generation in the country has increased by 8.11 percent in the year 2011-12

India has an installed capacity of 26 GW in the field of renewable power which represents 12.5 percent of the total power generated in the country

India at present suffers from a shortage of electricity generation capacity

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POWER


Expectations

3. Mega Power Policy provides for 85 percent of the power tie-up under Power Purchase Agreement

Mega Power Policy The power tie-up should not be restricted at 85 percent and should be limited to the domestic coal linkage

4. Section 80IA of the IT Act provides for tax holiday to an undertaking if it begins to generate power by March 31, 2013. Tax exemptions in the area of power are needed to ensure uninterrupted power supply

Section 80IA of the IT Act provides for 100 percent deduction of their profits to industrial undertakings provided for under this section

The sunset clause provided under section 80IA of the IT Act for power plants needs to be extended in order to include undertakings which begins generation of power by March 2013

5. The holding company requires to make a number of reinvestments. Dividend distribution tax results in limited reinvestment

Section 115-O of the IT Act provides for payment of tax on the dividends distributed by Indian companies

The dividend distribution tax for holding company or SPV should be exempt. It should be levied exclusively on the ultimate parent company

6. Service tax leviable on the construction of power plants becomes an ultimate cost and increases the cost of power

- In line with the benefits granted to other infrastructure projects like road, railways., airports etc., power sector should also be granted exemption from service tax


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POWER


Expectations

7. ECB in the field of Power sector are subject to withholding tax under the IT Act

Section 194LC of IT Act provides for TDS on income by way of interest paid by Indian Companies to a non-resident

The withholding tax should be removed on external commercial borrowings

8. Capital goods required for setting up of nuclear power projects are entitled to deemed export benefits by way of refund of excise duty. This results in cumbersome procedure and delay in claiming refunds which adds to the cost of the project

Chapter 8 of the FTP

In this regard, the capital goods supplied to nuclear power project should be provided upfront exemption of excise duty rather than a refund of duty


REAL ESTATE AND HOUSING

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Industry background


Expectations

1. Real estate sector would be granted ‘industry status’ Section 80IA of IT Act provides for deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development

Real estate sector should be granted ‘industry status’ for easier availability of funds and other benefits

2. Maximum limit on deduction of interest paid on borrowed capital should be increased

Section 24 of IT Act provides for deductions on income from house property

Deduction upto a maximum limit of Rs 1,50,000 lakh is currently available from taxable income towards interest on loan taken for acquisition/construction of self occupied house property. However, it is recommended that this exemption should be harmonized with the rising interest rates and should be increased to Rs 2,50,000


Contribution to GDP declined from 10.1 percent to 6.5 percent in 2011. Target of 10 percent contribution to GDP stipulated in 12th five year plan (2012-2017)

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Expectations

3. Limit should be raised for deduction on principal repayment

- In the case of home loan repayments, the ceiling under tax benefits is capped at Rs 1,00,000 for principal paid. The ceiling of Rs 1,00,000 under 80C of the IT Act is less, particularly when home loan repayments are clubbed with other tax savings instruments. Hence, the limit should be increased or the repayments should be treated as separate exemption entity and be excluded from benefits under section 80C

4. Infrastructure status would be granted to integrated townships

Section 80IA of the IT Act provides for deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development

Infrastructure status should be accorded to development of integrated townships


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Expectations

5. Limit should be raised for deduction on investment in infrastructure bonds

Section 80CCF of IT Act provides for deduction in respect of subscription to long-term infrastructure bonds

Section 80CCF allows deduction upto Rs 20,000 on investments made in long term infrastructure bonds. The limit should be raised to Rs 1,00,000

6. Service tax on construction of residential units be non taxable

Section 66E(b) of the Finance Act provides for construction of a complex as a declared service

• 12 percent service tax on residential construction, when government is providing incentives to boost housing acts like a deterrent

• Service tax increases the cost of house by about 4 percent

• To promote affordable housing service tax on residential constructions should be removed

7. Miscellaneous Section115JB and 115-O of IT Act

• Reduction of minimum alternate tax• Reduction of dividend distribution tax• Reduction in corporate tax


OIL & GAS

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OIL & GAS

Industry background


Expectations

1. • Liquefied Natural Gas (LPG) and Natural Gas (NG) are exempted from custom duty under Notification No. 12/2012-Customs dated March 17, 2012

• However the above exemption is only available if the power generating companies directly import the LPG or the NG

Notification No. 12/2012-Customs dated March 17, 2012

Custom duty exemption to LPG/NG should be granted on imports made by any person as long as the end use is for generation of power

2. Completion of various refinery projects is likely to be delayed

Section 80 –IB(9) of IT Act

Under Section 80-IB (9) of IT Act, deduction should be extended to refinery projects completed after March 31, 2015


The import component of domestic oil consumption is about 76.0 percent (after adjusting for export of refined petroleum products) and in the case of natural gas, it is about 19.0 percent

These percentages are projected to rise to 80.0 percent and 28.0 percent respectively, by 2016-17

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Expectations

3. Deduction in respect of profits and gains from undertakings engaged in commercial production of mineral oil and natural gas under Section 80-IB (9) of IT Act is limited to 7 years


Extension of the benefit under Section 80-IB(9) of IT Act from 7 years to 10 years, for undertakings engaged in commercial production of mineral oil and natural gas

4. Definition of term infrastructure sector in explanation to Section 80-IB (9) of IT Act is restrictive


Definition of infrastructure sector in the explanation to Section 80-IB(9) of the IT Act should be amended to include exploration and refining activities

5. • Various services availed by the E&P companies are subject to the levy of service tax

• This levy of service tax thus increases the cost of exploration activities and reduces the funds available for exploration

- • Service provided to companies engaged in E&P of oil and gas should be exempted from service tax

• Similarly, various services imported by the E&P companies could be considered for exemption

6. • Custom Notification No. 12/2012- Customs dated March 17, 2012, exempts items covered under list 13 which are items required for production, processing and well platforms from custom duty

• Equipments which are installed onshore are not covered under the said exemption

Notification No. 12/2012- Customs dated March 17, 2012

Items required for petroleum operations and are installed on-shore should be specifically covered under list 13 and exempted from custom duty


OIL & GAS

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Expectations

7. Custom exemption provided under S. No. 357 of Notification No 12/2012-Customs dated March 17, 2012 is restricted to only offshore oil exploration activities

S. No. 357 of the Notification No. 12/2012-Customs dated March 17, 2012

Custom exemption should also be extended to onshore oil explorations activities


OIL & GAS

CIVIL AVIATION

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AVIATION

Industry background


Expectations

1. • X-ray baggage inspection system and parts thereof are eligible for Nil BCD when imported by Government or its specified agencies like CISF, Police force, NSG etc.

• Generally, import is not directly undertaken by the specified agencies but by respective airport operators, thus duty concession is not available

S.No. 490 of Notification No. 12/2012-Customs dated March 17, 2012 provides for NIL BCD on import of X-ray baggage inspection system and parts thereof by the Government or specified agencies

The conditions under Notification No. 12/2012-Cus toms dated March 17, 2012 be amended to expand its scope to cover import by respective airport operators


The contribution of Civil Aviation sector to India’s GDP in 2009 including its catalytic impact was about 1.5 percent of the total GDP

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Expectations

2. The above exemption is limited to import of X-ray baggage inspection system and parts thereof. There are other machines also which are required for airport security

- The exemption should also be extended to the following:(a) Explosive detectors, (b) Bomb/suspect luggage containment vessels/units, (c) Robots for handling of bombs or suspected baggage, (d) Parameter security intrusion system and accessories, (e) Access control system, (f) Hydraulic bollards, (g) Boom barriers and (h) Cameras for CCTV

3. For better infrastructure facilities, development of airports is required, which in turn necessities import of goods from outside the country

- The goods required for development of airports should be allowed to be imported at the concessional rate of 5 percent BCD

4. Raising of funds from public by private airport operators - It is recommended that private Airport operators should be allowed to issue tax free infrastructure bonds from the public


AVIATION

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Expectations

5. Infrastructure development is a pre requisite for growth and development of the country. Upgrading of existing facilities is also a mode of development. However, benefits of 100 percent deduction under Section 80IA of IT Act is available only for new infrastructure

Under Section 80IA of the IT Act, a deduction of 100 percent of the profits and gains is available to a specified infrastructure facility for a period of 10 consecutive years during the first 15/20 years of their operation

Amendments to be made in Section 80IA of the IT Act, to extend the benefit of deduction to up-gradation/extension of existing facilities also

6. There is an ambiguity as to whether ancillary/support services required for the functioning of the airports are entitled to Section 80IA benefit

As per the current law, the deduction is available to an enterprise, if it enters into an agreement with Central or a State Government or the prescribed authorities

The agreements entered between the sub-contractor and then main contractor for carrying out ancillary activities be deemed as an agreement entered by the sub-contractor with the Central or State Government


AVIATION

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Expectations

7. There are two components to the passenger service fee (PSF) collected from the passengers-

(a) Facilitation component(b) Security component

The facilitation component forms and integral part of the airport operator’s revenue. However the security component is held by the airport operator in fiduciary capacity in an ESCROW account for and on behalf of the Central Government

- The amount of security component of PSF should not be liable to income tax in the hands of the airport operators

8. Level playing field for private airlines operators with public sector companies for a sustained growth of civil aviation sector

Section 72A of the IT Act provides for carry forward and set-off of accumulated losses and unabsorbed depreciation in a scheme of amalgamation or demerger between public sector companies engaged in aviation sector

The benefit under Section 72A of the IT Act be extended to the entire airline industry including private sector companies


AVIATION

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Expectations

9. Significant burden on the airline industry due to withdrawal of exemption under Section 10(15A) of the IT Act on operating leases for Aircrafts/ Aircraft engines entered after April 01, 2007

Section 10 (15A) of IT Act, provided that while computing the total income of an Assessee, exemption would be available for any payments made by the Assessee to a non resident for acquiring an aircraft or an engine of aircraft on lease

The exemption provided under Section 10(15A) be reinstated for operating leases entered after April 01, 2007 also

10. Additional compliance burden and costs on airlines owing to TDS deductions on payments

- TDS deduction on maintenance related payment by airlines like labor charges, fees for technical services and royalties be done away with

11. No proper facility for MRO of aircrafts in India. Consequently, MRO being carried overseas by the airlines, resulting in higher costs

- Specific tax incentives for development of MRO facility in India should be extended


AVIATION

TRAVEL & TOURISM

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TRAVEL & TOURISM

Industry background


Expectations

1. Incentivizing of investments for growth of Hotel Industry Section 80IA of the IT Act provides for a deduction of 100 percent of the profits and gains, to a specified infrastructure facility for a period of 10 consecutive years during the first 15/20 years of its operation

• Infrastructure Status as provided to airports, seaports and railways should also be extended to Hotels

• Hotels to be included as infrastructure facility eligible for tax holiday under Section 80 IA of the IT Act


Contribution of Travel and Tourism to India’s GDP in 2011 was 6.4 percent of total GDP. The expected contribution of Travel and Tourism to India’s GDP by the year 2022 is 7.8 percent of the total GDP

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Expectations

2. • Hotel buildings are entitled for depreciation @ 10 percent as applicable in case of buildings

• Hotel buildings are 'plants' for the hotel industry as their usage is round the clock for 24 hours. The industry has to make heavy investments in renovation, up-gradation and upkeep of the hotel buildings. Hence, the need for higher depreciation allowance

Section 32 of IT Act provides depreciation at different rates for building, machinery and plant

Depreciation rate for hotel building be increased to 20 percent

3. The benefit of deductions on FEE under Section 80HHD of IT Act, to the Tourism Industry was discontinued after 2005-06

Under Section 80HHD of IT Act, deductions in respect of earnings in convertible foreign exchange was available to an entity engaged in the business of Hotel or of a tour operator/travel agent

Given the quantum of FEE that Tourism Industry attracts, deductions on FEE for the Tourism Industry under Section 80HHD of IT Act to be revived

TRAVEL & TOURISM

ENTERTAINMENT

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Industry background

Both DTH services and cable services are at present reeling under the heavy burden of multiple taxation and levies such as license fee, service tax, entertainment tax, VAT on customer premises equipment (STB, Dish Antenna etc.) which cumulatively add up to as high as 56 percent. These levies are acting as an impediment to the growth and development of these services

ENTERTAINMENT



Expectations

1. Digitization with addressability - • Migration to addressable digital systems calls for large capital investment. This would involve changing/up-grading of STBs at the customer premises

• During the migration period there is a need to bring down the prices of imported equipments by reducing basic custom duty to make it affordable for the consumers and to facilitate smooth migration from analogue to digital

2. Infrastructure status to the cable sector - The cable sector needs to be given “Infrastructure” status in order to garner domestic funding

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Expectations

3. Rationalization of License Fee for DTH industry - • Presently, a license fee of 10 percent of the Gross Revenue collected by the DTH service provider is levied on the DTH industry

• It is recommended that the license fee for DTH services be reduced from present 10 percent to 6 percent. Since the DTH industry is a capital intensive industry, this relief would help the industry in a long way

4. Entertainment tax rationalization - • It has been suggested by the empowered group of ministers that the entertainment tax be subsumed in GST

• However, pending introduction of GST regime it is suggested that rationalization of rates of entertainment tax across various states at a uniform level should be encouraged by central government


ENTERTAINMENT

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Expectations

5. Inclusion of DTH services in the negative List of service tax

- • Cable TV and DTH Service is essentially the transmission of programme (images, audio, video, etc through radio frequency) which is taxed as “services” by Central Government and the same transmission of programme, is also considered as 'entertainment' services by the state governments and is also being taxed as a local service tax under a different nomenclature i.e. “entertainment tax”

• It is recommended that the DTH services be included in the negative list of service tax


ENTERTAINMENT

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Expectations

6. Exemption of service tax on Digital Cinema services - • Digital Cinema Solutions Providers had been granted exemption from service tax in respect of services provided in relation to delivery of the cinematography film in digitalized form transmitted directly to cinema by virtue of service tax Notification No. 12/2007 dated March 1, 2007

• Withdrawal of this notification in the new scheme of things has put undue hardship to the film industry

• It is recommended that the exemption to digital cinema solution providers for the services rendered in relation to delivery of digital content in movie to cinema theatres through satellite should be continued


ENTERTAINMENT

RETAIL

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RETAIL SECTOR

Industry background


Expectations

1. When a loss making industry in the retail sector merges or amalgamates with a profit making industry, there is no carry forwarding of losses. Accordingly, the benefit of the losses cannot be availed by the amalgamated company

Section 72A of the IT Act provides for carrying forward of losses and set off of unabsorbed depreciation in case of amalgamations and demergers etc.

The definition of “industrial undertaking” should be amended to include retail industries. This would ensure that the provision in relating to carry forwarding of losses would be applicable to the Industries in the retail sector


The retail sector accounts for 14-15 percent of the GDP The retail sector in India is made up of both organized retail stores which are registered

under different laws and hold appropriate licenses and unorganized retail stores consisting of local convenience stores, kiranas etc.

In January 2012, foreign direct investment in single brand retail was increased to 100 percent

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Expectations

2. Industries in the retail sector incur substantial expenditure on R&D . However, no deduction is available under the IT Act for the industries in the retail sector

Section 35(2AB) of the IT Act provides for 200 percent deduction for in house R&D facilities of manufacturing companies and those engaged in the business of Bio-technology

The deduction as available under section 35(2AB) of the IT Act should be extended to the industries in the retail sector in order to account for the expenditure incurred by the retail sector on R&D

3. Development of infrastructure by appropriate investment is essential in order to enhance the supply chains However, the Government has not provided any incentives to encourage such investments which are essential for the growth of the economy

- Certain exemptions should be granted for capital imports of supply chain equipment like hand-held scanners, fork lifts etc Exemption under various taxes should be granted for supply chain equipment


RETAIL SECTOR

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Expectations

4. The Industries selling consumer electronics offer heavy discount on the printed MRP to its customers. Accordingly, the excise duty paid by them is not fully recovered and becomes an additional cost

- The abatement on excise duty leviable on consumer electronics should be increased to 40 percent for 20-35 percent in order to reduce the cost for the Industry


RETAIL SECTOR

TEXTILE AND APPARELS

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Industry background


Expectations

1. The increase in excise duty on man made fibre has suppressed the demand for garments using polyester fibre and yarns. It also reduces export of value added garments

- The excise duty should be lowered to 4 percent. This would assist polyester yarns/ fibres, texturisers, weavers, knitting industry, processors and apparel manufacturers

2. The DTY is exempted from NCCD. However, the inputs used in manufacture of DTY like POY”are subject to NCCD. This results in accumulation of credit

- The accumulated credit should be reimbursed back to the unit who has paid the duty. Alternatively the credit could be refunded into the basic excise duty account


Textile and Clothing Industry is an important industry which accounts for 4 percent of the GDP and 17 percent of India’s export earnings

The domestic textile and apparel market is $ 58 billion and is expected to increase to $ 141 billion by 2021

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Expectations

3. The domestic textile industry suffers due to its foreign counterparts

Customs Tariff Act The customs duty in respect of certain polyester fibres and nylon fibres should be increased to 10 percent so as to make the domestic industry competitive

4. Maintenance of records for movement of samples between various people in the Industry including job workers, brand owners, manufacturers, buyers etc., takes considerable time and is a bulky process

- • Regular delivery challans with an endorsement “For sample purpose no commercial value” should be allowed as proof for movement of samples.

• Excise duty should be exempt on such samples

• To prevent misuse, the samples could be mutilated in the presence of the Department

5. The textile goods falling under different chapter headings and subheadings attract varying duty on the basis of their classification. The classification and duty paid is verified by the Department on the basis of testing of samples by Textile Committee. This results in delay in the clearance of goods

- • The duties being charged for different tariff headings covering textiles should be rationalized

• Clarification should be issued to the Department to accept the test reports of any accredited testing laboratory after matching the sample fabric affixed on the report with the import consignment



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Expectations

6. Branded ready-made garments are subject to excise duty at 12 percent. Even though an abatement of 70 percent is given, the increased excise duty has led to losses or marginal profits for this industry

Excise Tariff Act • Abatement for ready-made garments should be increased from 70 percent to 80 percent

• The excise duty could be reduced to 1 percent without any abatement

7. Textile goods imported are required to be certified that the goods imported by free from Azho dyes and other harmful chemicals. Otherwise, these goods are subject to compulsory testing and this causes considerable delay in clearances

DGFT Public notice No. 12 (RE-2001)/1997-2002

Internationally accepted practice of accepting accreditation certificate issued by International Association of Research and testing in the field of textile ecology should be adopted in India



INFORMATION TECHNOLOGY

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INFORMATION TECHNOLOGY

Industry background


Expectations

1. Whether the explanation 4 to section 9(i)(vi) of the IT Act should be applied retrospectively?

Explanation 4 to section 9(i)(vi) of the IT Act provides clarification in relation to royalty

Retrospective amendment exposes the taxpayer to punitive action for non deduction of withholding taxes for the past period which should be condoned

2. Whether transfer of right, property or information should be explicitly defined to bring in clarity

Clause (i) to explanation 2 to section 9(i)(vi) of the IT Act provides definition of royalty

Transfer of right, property or information should be explicitly defined and explained as it appears that definition of process is quite wide and would also apply and attract TDS provisions for payment of leased line/ telephone charges etc.


Contribution to GDP increased from 1.2 % in 1997-98 to 7.5 % in 2011-12 Target of 10.5 % contribution to GDP stipulated in 12th five year plan (2012-2017)

AGRICULTURE

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AGRICULTURE

Industry background


Expectations

1. No Increase in funding for agriculture research - • Funding to research institutes like ICAR, state agriculture universities may be increased

• Special fund should be created for fast track development of high yielding varieties, hybrids and plantlets multiplied through tissue culture and other advanced technologies under PPP mode

2. Unrealized potential in fresh water fish farming, long line shark and tuna fishing

- Financial assistance through soft loans, equity risk covers, insurance etc. , should be given to these areas


Agricultural GDP growth accelerated to average 3.7 percent growth during 2005-06 to 2010-11, partly because of initiatives taken since 2004

However, it is still below the 4.0 percent target set in successive plans from Ninth Plan onward and is it not sufficient to prevent unacceptably high food inflation in a context of very volatile world prices and in the wake of a severe drought in 2009

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Expectations

3. Weather station would help mitigating farmers risk through weather insurance products

- • Funding of weather stations by the Government

• Weather stations should be eligible for direct tax incentive in the form of 100 percent tax holiday in respect of the profits earned from this segment for a period of 10 years

4. Tax exemption sought to cold chain equipments and part thereof

- Custom duty and excise duty rates on cold chain equipments and their parts should be reduced to 5 percent or even lesser

5. No tax exemption to agricultural machinery and equipment

- Excise duty and VAT exemption for agricultural machinery and equipment

6. State level cooperatives are taxed at the rate of 35 percent, while private diary companies are exempt from income tax

- Income tax rate for cooperative sector to be brought at par with private diary companies


AGRICULTURE

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Expectations

7. Lack of fiscal incentive to cooperatives - • Grant fiscal incentives by way of 100 percent depreciation on all investments in physical assets

• Cooperatives should be given 100 percent tax holiday in respect of the profits of the undertaking for a period of at least 10 years and further giving the assessee an option to claim this tax holiday for any 10 consecutive years out of 15 years

8. Services like security services, laboratory testing services etc., which are essential to secure storage of agricultural produce are subject to service tax

- It is recommended that all services provided for agricultural produce be kept outside the ambit of taxable service


AGRICULTURE

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Expectations

9. There are certain machinery and equipment which are essential for agricultural production but are not domestically produced and need to be imported

The import duty on such machinery and equipment increases the cost for the farmers

- Import duty should be granted to the following items:

• Laser Land Leveler and its components such as transmitter

• Machines for cleaning, sorting or grading seed, grain or dried legumious vegetables

• Harvesting machinery, threshing machinery, root or tuber harvesting machines such as potato diggers and potato harvesters

• Machines for cleaning, sorting or grading eggs, fruits or other agricultural produce


AGRICULTURE

HEALTHCARE

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HEALTHCARE

Industry background


Expectations

1. Slow improvement in investment activity • Section 80-IA of IT Act provides tax holiday for 10 consecutive years

• Section 115 – JB of IT Act

100 percent tax deduction on:

• Profit and gains derived from operating and maintaining hospitals for consecutive 10 years

• New capital expenditure towards replacement of old machinery/equipment

• Exemption from MAT• Concessional loans/financial

assistance on priority basis, as provided to infrastructure sector


The sector has witnessed a phenomenal expansion in the last 4 years growing at over 12 percent annually

Healthcare sector attracts 4.6 percent of total GDP spent in India

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Expectations

2. Requirement of PPP Framework - • Free/concessional land and use of public healthcare facilities for private medical college

• Appropriate tax incentive to primary health care chain to encourage the private sector participation

3. Expensive health insurance schemes - • Withdrawal of service tax on health insurance premiums

• Healthcare services are already exempted from service tax and this benefit should be extended to health insurance premiums

4. TDS implication on insurance claims Section 80 D of IT Act

In case of cashless arrangements of health insurance claims, the ultimate beneficiary of such health care services is the individual. Therefore, TDS should not be applicable on payments made towards settlement of claims by the insurance company to the hospital on behalf of the insured


HEALTHCARE

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Expectations

5. Insufficient incentive for institutions like R&D, TEHS and EHR

- • 250 percent deduction on approved expenditure incurred on R&D activities and TEHS (like telemedicine, remote radiology etc.)

• Extension of deduction (250 percent) on investment made for the implementation of EHR

6. Security of domestic industry - • Lowest slab for excise duty on medical equipments to enable the domestic industry to find foothold

• Full exemption or minimal service tax rate on service and maintenance of contracts for medical equipment

7. Same rate of excise duty for branded and generic drugs

- Exemption from excise duty for generic drugs

8. Non availability of basic infrastructure and tax holidays

- Creation of Medical Technological Parks and inclusion of custom duty on raw material, excise duty concessions, VAT holidays, IT holidays, etc.


HEALTHCARE

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Expectations

8. High custom duty for medical/dental/surgical equipments

- Very low custom duty on import of finished products and nil customs duty for the import of raw materials/ parts/ subassemblies required for ultimate local manufacturing of instruments/accessories and consumables

9. SAD levied at the rate of 4 percent - Exemption for certain medical products from carrying an MRP sticker at the time of import and permission to importers to affix MRP stickers post importation at their own warehouse


HEALTHCARE

EDUCATION

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EDUCATION

Industry background


Expectations

1. Legal and tax treatment similar to other infrastructure projects

Section 80-IA of IT Act provides tax holiday for 10 consecutive years

Grant of “Infrastructure Status” to higher education to draw more capital in order to allow legal and tax treatment similar to other infrastructure projects

2. Limited participation of private players Section 25 of Companies Act

Currently, government is allowing only technical institutions to be set up through this section. In order to attract investment from private players, this should be open for all types of institutions and permission should be given to convert existing trusts and societies under Section 25 of Companies Act


Currently, the Government spends around 3.8 percent of its GDP on education A potential growth rate of 16 percent is expected over the next 5 years

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Expectations

3. Setting up of NHEFC - • Setting up of NHEFC under the 12th Five Year Plan for creating alternative avenues of revenue generation for higher educational institutions/universities

• NHEFC is an initiative by the Government aimed at fee rationalization, student financing and education financing mechanism for the higher educational institutions

4. Government should make provisions in order to produce skilled personnel for global requirement

- • Any enrollment for a skill certification course should be eligible for 20 percent tax rebate (applicable only for tuition fee)

• Skills centre in a backward area should be given incentive like exemption from income tax for a period of 5 years


EDUCATION

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Expectations

5. Need to introduce tax free accounts/purchase bonds - • Parents or students should be allowed to open education specific accounts/purchase bonds where earnings/growth of investment inside the account accumulate without tax

• Withdrawal should be tax free as long as it is used for specified higher education expenses


EDUCATION

CHEMICALS & PETROCHEMICALS

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Industry background


Expectations

1. High input duty on inputs like naptha, propane, butane and intermediaries like ethylene, propylene etc , have made local production of the petrochemicals products unviable

- Import duty on petrochemical inputs like naptha, reformate, propane, butane, ethylene, propylene, EDC, VCM and styrene should be brought down to zero

2. The polymer producers are unable to offset the SAD paid on feedstock imports, due to very low duty differential which leads to large accumulation

- In order to address the issue of unutilized SAD credit, SAD should be waived on imports of feedstock and import of monomers by end use manufacturers


Demand growth has decelerated and reached a low of 3 percent during 2011-12 No major investment is forthcoming. It is expected that demand will pick-up in future,

benefits of such growth would accrue to overseas producers in the absence of supportive policy environment for local investment

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Expectations

3. High excise duty on raw material and plastic products - Excise duty on plastic raw materials and plastic products should be reduced from 12 percent to 8 percent

4. Differential between antimony metal and antimony trioxide is 2.5 percent which is not sufficient

- Differential between antimony metal and antimony trioxide should be at least 5 percent

5. Pesticides and fertilizers are not given similar treatment for levy of excise duty

- The excise duty on pesticides should be brought at par with the excise duty on fertilizers



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THANK YOU

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pre-budget expectations 2013-14

Documents