The Hindu Business Line : Will the FM deliver enough bang for the Budget buck?

BUDGET EXPECTATIONS differ across various industry segments. Presented below are a few of these, from corporate chiefs and tax experts. The big question is whether the Finance Minister will play the right tune that satisfies all the sectors.

Oil and gas

Indirect taxes: Correction of the inverted duty structures in the petroleum industry: At present, the Customs duty on crude oil is 10 per cent while the Customs duty on petroleum products such as superior kerosene oil and liquefied petroleum gas (LPG) is 5 per cent and for naphtha, `nil'. The expectation is, therefore, a reduction of the Customs duty leviable on crude oil to 5 per cent and rationalisation of the duties on the other petro-products in such a way that the overall duty differential between crude oil and petroleum products is maintained at 10 per cent.

Restructuring of the excise duties in consonance with the Lahiri Committee Report: Excise levies are currently levied on an ad valorem basis (that is, on the value of the product). The committee has recommended a combination of ad-valorem duties, which would be low and a specific duty that would be high (specific duty is levied on the quantum of a product). This move would not only serve to cushion the consumers from any volatility in the global market but also prove to be a revenue neutral measure as far as the exchequer is concerned.

Targeting the subsidies available for LPG and kerosene by a reduction in the excise duties levied on the goods. Taxing subsidised products only leads to an increase in the declared subsidy by the Government and distortion in the market.

Concessional rates of Customs duty on products required for oil and gas projects, such as building pipelines, refineries, and so on: A reduction in the Customs duty on materials required to build cross-country pipelines would help oil companies reach the consumers at a lower cost.

Direct taxes: Farm-in costs: There is no specific provision in the Income-tax (I-T) Act to deal with the tax treatment of farm-in costs, that is, acquisition cost of participating interest in E&P sector. This results in vagueness and hampering consolidation in the sector. It is recommended that suitable amendment be made in the Budget to clarify the treatment of farm-in costs.

Deduction for infructuous or abortive expenditure is not allowed till the surrender of area though the same are charged off in the accounts. As a result of requirement of surrender of the area prior to the beginning of commercial production, the assessee may not able to utilise deduction from taxable income, of expenses on account of abortive exploration in the year of incurrence of expenditure. It is, therefore, proposed that condition of "surrender" of area for claim of infructuous or abortive expenditure be deleted.

Nityanand Gupta,

Leader, Oil and Gas Group,

PricewaterhouseCoopers

Entertainment and media

FM radio broadcasting: Currently, FDI is not allowed. This is inconsistent with the FDI policies on other media segments where FDI is allowed ranging from 20 per cent in DTH up to 49 per cent in cable services. Even foreign news television channels are permitted FDI. TRAI has also recommended allowing FDI up to 26 per cent in FM broadcasting for both entertainment and news stations.

Print media: FDI limits should be increased from the current 26 per cent up to 49 per cent. Currently, FDI investment in print media is allowed up to 26 per cent in news and current affairs segment. However, in television, FDI is allowed up to 49 per cent. This includes news and current affairs television channels also. Hence to bring parity, industry players have been demanding the increase in FDI limit to the level of 49 per cent keeping intact the restrictions on editorial and management control. The Government is also looking at the content syndication rules, which permit Indian newspapers to source up content from their international counterparts from the current 7.5 per cent to 25 per cent

TV news channels: Currently, FII investment in TV news channels is not allowed, though FDI is allowed. Listed TV news channels are demanding this since FIIs have been buying their stock on the stock exchanges and it is difficult for the company to monitor the same and, thereby, adhere to the norms. Unlisted news channels have also asked for allowing the same as it assists them for a successful listing of the company

Entertainment tax to be made a Central subject: Shifting entertainment tax from being a State subject has been a long outstanding demand of the industry.

Deepak Kapoor,

Leader, Entertainment and Media Practice,

PricewaterhouseCoopers

Real estate

The real estate industry strongly believes that it should be regarded as an infrastructure partner to the IT industry and be given the same development opportunities.

Subsidies on land purchased and various Customs and Excise Duty exemptions on equipment imported must be transferred to the industry so that it can pass on the same to a larger volume of start-up and newly established IT players and, thereby, increase employment opportunities.

Also, import duties on steel manufacturing inputs must be lowered so as to bring down the overall cost of production. This, together with reduced steel excise rates, would help keep the costs low and have a positive impact on the construction and real estate industry.

It is hoped that low interest rates on housing loans and the associated tax benefits would continue.

Brig. A. R. Sinha,

CEO, Real Estate Division,

Shapoorji Pallonji & Co. Ltd

Housing

The housing sector has a positive impact on employment and income generation. It is estimated that a 10 per cent increase in final expenditure in construction increases GDP by 3 per cent; such increase would yield an estimated 1.5 million new jobs. This translates into an increase in construction employment by about 9 per cent.

Some of the important expectations to the housing sector are:

Entire purchase price and interest paid thereon for purchase of first house of a family should be eligible for deduction from the total income of any one of the individual of the family.

Regulation under Section 80(I) (B) should be relaxed. Exemption for income from the residential portion of a project should qualify for deduction and income from the commercial portion allowed a deduction of 50 per cent of such income. The current limit of 5 per cent or 2,000 sq.ft of commercial area should be deleted.

Along with the benefits of indexation, the rate of the long-term capital gains accruing from the sale of property should be reduced to 10 per cent. The definition of long-term asset in the case of property should be when the property is owned/possessed for 12 months, instead of three years.

Section 50 C and the I-T Act should be deleted, as this section seeks to tax income which might have never been received and it only deals with stamp duty valuation by a State government; it is silent on property in a Union Territory. It is common knowledge that rates given by State governments are on higher side, the intention solely being to enhance the revenue from stamp duty.

Income from renting of properties may be taxed at a flat rate of 10 per cent for the first five years of all newly constructed rental complexes/blocks. This will boost rental housing; and

Depreciation allowance of 50 per cent may be allowed on investment made by employers in employee housing.

Vimal Shah,

MD, Akruti Nirman Ltd

Gold

The import duty on gold jewellery should be reduced to 10 per cent in order to boost the export of gold jewellery. India is the largest consumer of gold jewellery in the world, but many smaller countries such as Italy and Turkey have a much larger market share of the international gold jewellery market because Indian jewellers and artisans are not exposed to international consumers' design preferences and fashion trends.

This will also ensure that finished gold jewellery gets imported through the official route and also help increase the Customs duty collection. This case is supported by the fact that with the Government having reduced the import duty on gold bullion to a nominal amount of Rs 100 per 10 gm, we have observed that almost all the gold requirement of the country is coming through the official channel only.

The Reserve Bank of India should allow banks to offer gold-backed savings product so that part of these investment can be channelised through the more regulated banking sector. The entire savings of Rs 5,000 crore every year is routed through the informal channel of jewellers and bullion dealers. Over the last 10 years alone, over Rs 50,000 crore of savings has been channelised into gold bars and coins and all of this remains in the informal sector.

Indian bank's should be allowed to give `gold' loans which is, at present, 4-5 per cent lower than rupee loans. This will help jewellers reduce their working capital cost and, hence, the cost of gold jeweller to the consumers. It will also allow the gold held in the gold savings and gold bond accounts to be deployed more productively.

A spot market for gold in India should be developed. Indian households buy gold worth Rs 40,000 crore every year. Over the last decade at least 20 per cent of the total supply of gold was consumed by India, yet the domestic financial sector has very little influence in the international gold market.

Banks and other financial institutions should be allowed to trade on the commodities exchange on "spot price" basis. Banks should also be allowed to develop investment products linked to gold, such as gold-backed certificates/bonds.

This will ensure that over time, based on the regulatory framework, India can develop as a major gold trading centre in the world.

Mr Sanjeev Agarwal

MD, Indian Subcontinent,

World Gold Council

TDS

In the case of tax deduction at source (TDS) for salary, non-monetary or non-cash perquisites may be omitted by exempting them from tax altogether.

Also, the employer may be empowered to collect complete income details of the employee and comply with the requirement rather than the current position of taking note of certain deductions only.

Section 194 A provides for tax deduction on interest other than interest on securities. The limit for tax deduction is, at present, Rs 5,000. This was prescribed w.e.f. June 1, 2000. The tax deduction limit may be enhanced to Rs 10,000.

Section 194 C provides for tax deduction on payments made to contractors and sub-contractors. The limit is Rs 20,000 in the case of single contract and Rs 50,000 for aggregate payments to a contractor during the financial year. This limit of Rs 20,000 was fixed w.e.f. July 1, 1995. This may be enhanced to Rs 50,000 and the aggregate payment limit, to Rs.2 lakhs.

Section 194 H provides tax deduction in respect of commission or brokerage where the payment exceeds Rs 2,500. This limit may also be enhanced to Rs 10,000.

Section 199 provides credit for tax deducted at source. The statute may be amended in such a way that no refund is issued on the tax deducted at source and the assessee, however, shall be eligible for credit in his account with the Department.

Future tax payments may be adjusted based on the credit availability. Even advance tax and self-assessment tax paid by the assessees may be retained by the Department for adjustment against tax due in the subsequent periods. This would result in no outflow of funds from the Department to the taxpayer. However, where the assessee intimates the discontinuance of business, employment, and so on, then with the prior approval of Joint Commissioner the amount standing to the credit of the assessee may be refunded. Discontinuing the practice of issuing refunds could save lots of administrative work and time.

Penalties

Section 271(1)(c) provides that penalty shall be equal to the tax but shall not exceed three times the tax sought to be evaded. This provides scope for subjective judgment of the authorities. Hence, a flat penalty equal to the amount of tax sought to be evaded may be prescribed. Also, where the loss is reduced, penalty is leviable w.e.f. April 1, 2003, because of clause (a) to explanation 4 to Section 271.

This has upset the apex court decision in the CIT vs Prithipal Singh & Co (2001 249 ITR 670 SC) case. This amendment may cause hardship to taxpayers who have loss, and such loss, merely because of not being accepted by the authorities and reduced, should not result in the assessee being penalised.

Section 271B provides penalty for failure to get the accounts audited under Section 44AB. The penalty is without giving any consideration for the period of delay. It would be better if the penalty is linked to number of days of delay in which case the assessees may prefer to pay penalty than rush for audit completion and filing of the report.

Sections 271 D and 271 E are meant to penalise assessees who accept loan or deposit otherwise than by account-payee crossed cheque or draft and for repayment in contravention of Sections 269SS and 269T respectively. These sections were inserted to check black money circulation in the form of credit in the books as loan or deposit.

However, in reality, without verifying the genuineness of the transaction for technical violations, penal proceedings are initiated. This also gives subjective discretion on the law implementing authorities. The law may be amended in such a way that if the loan or deposit is proved genuine, then for not complying with the provision (viz. acceptance by means of account-payee crossed cheque or draft) a token penalty of Rs 2,000 per violation may be provided.

V. K. Subramani,

Chartered accountant,

Erode

Security

World over, the business of security is taken seriously. In the US, for instance, tax exemptions are given to customers investing in electronic security systems. Back home, while the need for security remains the same, there is no incentive from the Government to promote the industry. The import tariff is high and no I-T concessions are available for installing electronic security.

The Government should harness the industry by reducing Custom duties and providing tax exemptions for individuals and corporates for their investment in security.

Mr Pramod Rao,

Managing Director,

Zicom Electronic Security Systems

Service tax

Service tax and Cenvat (Excise Duty) should be merged into one piece of legislation. Currently, Cenvat is charged under Cental Excise Act, 1944 and service tax under Finance Act, 1994 (a separate service tax enactment is long overdue).

Last year, service tax and Cenvat credit were brought under one Cenvat credit rule. Hence, it would be logical to merge Cenvat and service tax into one piece of legislation. For this Budget, merging the rate into one could be far-fetched.

Service tax provisions should have elaborative/exhaustive provisions for defining what is "Export of Service" and should precisely set the mechanism for exempting taxable service used in the export of service.

Service tax exemption given for SEZ units should be extended to EOU/EPZ/STPI units. Currently, only the Exim Policy provides for such benefit, there being no corresponding revenue notification.

If input taxable service is not exempted for provision of export of service, there should be a mechanism to allow credit on the same for future refund to the exporters. This would make exports more competitive.

As regards service tax liability on goods transport operators, the clarifications required include: listing all the possible modes transportation adopted and clarifying who will be liable to pay the service tax and who will be entitled to take the input; there could be situations where the input service recipient of service, namely, the consignor, could become the taxpayer, in such a case whether he would be eligible for input tax credit of the amount paid as credit; and by showing the freight amount separately in the invoice, the consignor would be required to register and pay service tax, as originally, the consignor would have paid the freight.

B. Sriram,

KPMG,

Healthcare

The healthcare sector is expected to touch Rs 1,86,200 crore (£26.6 billion) by 2005-06. An increasingly affluent and more consumer-orientated population of 100 million, who are seeking and willing to pay for a higher standard of healthcare, is propelling the growth. The private sector is playing an increasingly important role in the provision of healthcare services in India.

Investments in healthcare should go up substantially with the proposed extension of tax benefits to financial institutions. Import duty on medical equipment should be reduced, as most of the major medical equipment are imported.

Medical tourism should be recognised as an important tool for earning foreign exchange and appropriate tax exemptions provided to hospitals.

Dr Ramakanta Panda,

Chief Executive Officer,

Asian Heart Institute and Research Centre

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Will the FM deliver enough bang for the Budget buck?