The Hindu Business Line : Budget 2008: No big deal for India Inc

Every year, the introduction of the Finance Bill is preceded by anticipation from the corporate sector of a reduction in tax rates and introduction of tax sops.

The Finance Minister in the last Union Budget of the UPA Government, while showering substantial gains on the personal tax front, has not brought about any radical changes in the corporate tax provisions.

In a politically correct Budget, before the general elections, which primarily aims at wooing the farmers and the middle-class, there exist some provisions that benefitthe corporates.

With removal of cascading effect of Dividend Distribution Tax (DDT), substantial relief has been granted to corporates adopting a single tier holding structure.

The proposed amendment is aimed at providing deduction of dividend received from a subsidiary while computing the amount on which DDT is payable by the parent. Though a welcome relief, the amendment grants benefit only in respect of dividend received from a company in which the parent has more than 50 per cent holding and where the parent is itself not a subsidiary of any other company.

With the aim of providing a fillip to the healthcare sector in non-urban areas, there is a proposal for providing five-year tax holiday to undertakings owning hospitals — those that were constructed or and begins operations between April 1, 2008 and March 31, 2013.

Similarly, amendment is proposed for providing five-year tax holiday to undertakings owning hotels, where such hotel is constructed and commences operations between April 1, 2008, and March 31, 2013, in specified areas.

Research activities

For companies outsourcing scientific research activities, weighted deduction of 125 per cent is proposed on contributions to a company engaged in scientific research. This shall provide much-needed boost to research activities of small and medium enterprises, not in a position to make huge capital investment for R&D purposes.

The Finance Bill also extends benefits of amortisation of specified post-commencement preliminary expenses to the services sector, to bring parity with the manufacturing sector. In order to provide newer financing options to corporates, the Finance Bill provides for tax neutrality provisions in relation to conversion of Foreign Currency Exchangeable Bonds into shares, by exempting such conversion from definition of the term ‘transfer’ and prescribing mechanism for determining the cost of acquisition of converted shares. A sigh of relief has been provided to corporates as the ambit of Fringe Benefit Tax stands reduced by providing exemption on expenditure pertaining to guest house, sports events for employees, sponsorship of a sportsman employee, creche facility and pre-paid electronic meal card. The value of fringe benefit on festival celebration expenses has also been reduced from existing 50 per cent to 20 per cent.

Abolishing BCTT

The Finance Bill abolishes the Banking Cash Transaction Tax on transactions made after March 31, 2009. Also, the due date for complying with conditions for provident fund recognition stands extended by one-year to March 31, 2009.

As regards the downside, an increase in short-term capital gain tax on listed securities from existing 10 per cent to 15 per cent comes as a major setback for Foreign Institutional Investors and capital markets.

Dealings in the commodity exchange transactions have been subjected to new tax on the lines of Securities Transaction Tax.

With introduction of this tax, the Finance Minister has kept with the tradition of introducing a new tax every year. Insertion of sunset clause on tax holiday to companies commencing refining of mineral oil comes as a huge blow to an important sector of the economy.

Further, proposed changes in MAT provisions to provide for addition of deferred tax and dividend distribution tax in computing book profits is not likely to go well with the corporate sector.

With the possibility of a global slowdown looming large, the corporate sector expected a major boost from the Budget. Though concessions have been granted to corporates, most of their aspirations remain unaddressed. The path ahead lies in striking a balance between the Government’s idea of inclusive growth and the ‘wish list’ of the industry.

(The author is a Partner with BMR Advisors)

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