NEW DELHI: Industry has warned that withdrawal of existing concessions for infrastructure projects in the budget proposals may derail the momentum needed to ramp up investment in this critical sector. It, therefore, feels that it is "imperative" to restore the exemption of income from investment in infrastructure projects.

This is one of the tax changes being sought by chief executive officers (CEOs) and chief financial officers (CFOs) according to a survey carried out by the Federation of Indian Chambers of Commerce and Industry (FICCI). The survey of 100 CEOs and CFOs has found that they are keen to keep sales promotion expenses out of the purview of the fringe benefit tax (FBT) while welcoming the simplification that has been carried out in the budget.

On infrastructure, corporate leaders felt that the budget had given "conflicting signals". On the one hand, they say, the desired focus has been given to telecom and road transport by providing higher allocation but, on the other, in terms of fiscal stimulus, no incentives have been granted. They have cautioned that the sudden withdrawal of the income tax exemption would lead to an immediate increase in the cost of funds for these projects, thereby jeopardising their viability. They point out that investors usually provide funds on the condition that the interest rate would increase if the income tax exemption was withdrawan.

The CEOs and CFOs were concerned over the proposal to include long-term capital gains on securities in book profits for companies paying Minimum Alternate Tax (MAT). They said investment companies whose core business was investment, would not be able to take credit of the MAT paid as their only source of income was either dividend or trading in shares. Companies paying MAT strongly felt that the existing rate of 7.5 per cent should be retained. This was in line with the principle that moderate taxation leads to higher revenues to the exchequer, they said.

The survey revealed that the industry captains were worried about the impact of the amendment to the definition of long-term specified assets restricting income tax exemptions to investments in bonds of the National Highways Authority of India and the Rural Electrification Corporation issued on or after April 1, 2006.

They felt that many assessees had already made investment during the 2005-06 financial year in bonds of NABARD, SIDBI and NHB on the basis of the government assurance that these investments would qualify for exemption under the relevant section of the Income-tax Act. However, the retrospective amendments would deprive assessees from availing themselves of tax benefits, they point out.

In regard to the proposal for a goods and service tax, those surveyed felt that the government must draw lessons from the state level VAT and frame a clear-cut roadmap so that the system could be put in place by April 1, 2010 without any hassles.

They even suggested that a central level committee be set up to look into the matter.

© Copyright 2000 - 2009 The Hindu