What the readers want - III

Infrastructure needs thrust

India is blessed with a huge young population, comprising agrarian community and urban and semi-urban middle class, who has the intention to spend and disposable income both. Which is why population - hitherto considered as a burden for India - has suddenly converted itself as the most positive factor for the country. India today is at the crossroads, and this Budget is the most important tool for India's sustainable growth. Mr Pranab Mukherjee should ensure “equitable and perceived justice” to all the issues he is faced with – such as governance, tax compliance, accountability, transparency, prudential norms, public expenditure rationalisation, mobilisation and optimum utilisation of resources, fiscal deficit containment and finally, inflation management; keeping in mind the “Inclusive Growth”.

Such inclusive growth is not possible to come by unless there is special emphasis on Infrastructure by the Government. We are all aware and talk about Infrastructure deficit in India, and possibly now the time has come to adopt specific steps to improve Indian infrastructure on sustainable basis which is faced with major issues such as capital availability, tax breaks, etc. From the Infrastructure sector, we would look at the two most important bottlenecks choking the growth of the sector, viz. capital availability and tax incentive. If India has to move on to Fifth gear, we possibly have no option than to address these two issues on priority basis.

Gautam Adani

Chairman, Adani Group

Tax issues plague software services industry

It is common place knowledge that the Information Technology (IT) and Information Technology Enabled Services (ITES) industry has not only put the India Inc. on the global map, but has also opened up employment opportunities for millions of educated Indian youth. The resilience shown by the industry to steer clear of the unprecedented economic depression has brought glory to the country and has manifestly enhanced its standing in the comity of nations. Unfortunately, these facts have made little or no difference to the tax administrators.

Under the current indirect tax regime in India customs duty is levied on import of goods and excise duty on goods manufactured in India. Besides, sale of goods in India attracts value added tax, if sold within the State and Central Sales Tax if sold interstate. With the ushering in of the Finance Act, 1994 Services became taxable and since then the list of taxable services has been expanded year after year. From May16, 2008 Information Technology Software Services (ITSS) have also brought within the service tax net.

The IT/ITES industry is mainly into 3 identifiable segments – development of software, services relating to implementation of software and customisation services and maintenance of software including providing upgrades as a part of service.

The industry has been plagued by this issue for three years now and now that even Goods & Service Tax (GST) – which would have resolved this issue – is not in immediate sight there is an emergent need for corrective action.

Shankar Bala

Executive Director, Ernst & Young

Give MAT exemption for non-life insurers

The recommendations made to the Government are as follows:

Applicability of the provisions of Minimum Alternate Tax to General insurance companies

Non Life Insurance Companies (NLIC) ought to be exempted from MAT as these companies do not enjoy any tax incentives. The insurance companies are required to prepare books of accounts as per the requirements of IRDA regulations. The insurance companies do not prepare accounts as per Schedule VI of the Companies Act which is prescribed under the provisions of MAT.

Taxation of Profit on Sale of Investments in the case of General Insurance Companies

Tax deduction at source on Reinsurance premium – Payments related to reinsurance premium made to non residents should be specifically exempted from tax deduction at source under Section 195.

Presently, foreign reinsurance companies merely receive reinsurance premium from Indian insurers and settle claims raised by Indian insurers. Under the Insurance Act, foreign reinsurers are not permitted to operate in India. Accordingly, the income, if any of the foreign reinsurance companies, would not be taxable in India. Foreign reinsurance companies who are tax residents of the countries with which India has signed Double Taxation Avoidance Agreement (DTAA), would not be subject to tax in the absence of permanent establishment in India. Accordingly specific exemption may be granted in respect of deduction of tax at source from payments on account of re-insurance premiums made to them u/s 195 of the Income Tax Act.

Mr Rakesh Jain

Director - Corporate Centre & CFO, ICICI Lombard General Insurance Company

Focus on fiscal consolidation

The government has committed to lowering the fiscal deficit to 4.8 per cent of GDP in FY12 and the Finance Minister is likely to stick to this number. Net market borrowing are likely to be around 8 per cent higher next financial year with gross borrowings at roughly the same level due to lower redemptions.

Fiscal consolidation requires the Finance Minister to project a small rise in total expenditure, much lower than the average annual expenditure growth of close to 20 per cent over the last four years. Such belt tightening would require cuts in discretionary spending on defence, investment-related allocations, and a reduction in central government assistance to the States. This would make the fiscal stance slightly contraction, but are necessary in an environment of high inflation and robust growth. They would also help create room for other high priority expenditure in areas such as heath, education and rural development schemes.

Overall, total expenditure may end up rising by much more than the government shows in the budget and fiscal consolidation may end up being achieved only on paper.

Sonal Varma

India Economist, Nomura Financial Advisory and Securities (India) Pvt. Ltd

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