Selective depreciation

Why is 100 per cent depreciation being offered selectively on an incremental basis? Can't it be implemented across the board?

Pragya Mehta, Ahmedabad

Investment-based tax incentive came to replace profit-based tax holidays a couple of years ago, the idea being to incentivise investments which is what 100 per cent depreciation amounts to. To start with cold storage and gas pipelines alone made the grade but last year hospitals and hotels fulfilling certain norms were also added to the list. Even the DTC Billkeeps the list selective. The Finance Bill, 2011 proposes to add fertiliser industry to the list. If depreciation is viewed as a tax incentive, it should be granted in one go as in the UK across the board without picking and choosing. Accelerated depreciation results in greater tax collections in the subsequent years at the micro level, though at the macro level, with the investment climate being upbeat there could be some revenue loss. That is why accountants call the difference between the tax and accounting depreciation a timing loss.

Take-out financing

What is takeout financing? Is it the same as takeover financing?

Kishan Lal Bishnoi, Gurgaon

Takeout financing is meant for commercial banks which are unable to lend to infrastructure projects otherwise. Commercial banks typically accept short-term deposits and find it difficult to lend long-term. But this difficulty can be overcome if three or more banks join hands. Bank A sets the ball rolling, let us say, for three years; then Bank B takes over for the next three years and so on in a manner of running a relay race. The banks have to give their consent at the very beginning so that the borrower is not left high and dry later in the day. Takeover financing is an entirely different concept. It is funding of M&A activity. This is common in Europe and the USA. In India, it is conspicuous by its absence. But if the Securites and Exchange Board of India were to accept the Achuthan Panel report and usher in a 100 per cent public offer norm as against the extent 20 per cent norm, it would most certainly require takeover financing to be simultaneously made operative.