IMPACT OF BUDGET ON INDUSTRIES

[Mr. M. GOVINDARAJAN]

SURCHARGE

The Indian companies did not get any tax break or duty concession in this budget. Surcharge on corporate tax is doubled from 5 to 10% if the taxable income is over Rs.10 crores. The Income Tax Department data shows that companies with taxable income of over Rs.10 crore accounted over 86% of the total tax paid.   Based on their pre tax deposits for 2011 – 12, the increase in surcharge will make the companies to pay over Rs.9000 crore more in the next year.

POWER GENERATION INDUSTRY

The tax holiday for power generation under Section 80 IA is extended for one more year.   By this proposal many project will be operational next year. A total of 14671 MW of power capacity is expected to be commissioned in 2013-14. The budget asked State Governments to go ahead with financial restructuring plans for the state run electricity boards. Power generation companies will also benefit from a short working capital cycle if the proposed restructuring plan for the State Electricity Board is implementing by the State Government.

There is an increase in Customs duty on steam coal to 2% and increased in COD from 1% to 2% which will increase the per unit cost of power by around 10 paise.

DISTRIBUTION DIVIDEND TAX

Dividend Distribution Tax is to attract higher Surcharge – listed firms to shell out Rs.700 crores.   More may hold back dividend payments. Analysis of dividend payment by 1406 listed companies shows a total dividend tax outgo of Rs.14,895 crores on dividend of Rs.88,275 crores in 2011-12.

OIL SECTOR

The budget has not accepted the oil sector’s requests for clarity on subsidy sharing, relaxation or extension of tax holiday clauses and exemption from service tax.

WIND ENERGY SECTOR

The Finance Minister has restored the generation based incentive to the wind energy sector and provided Rs.800 crores to the Ministry of New and Renewable Energy. It will spur investments in this sector.   The Government will provide low interest bearing funds from the National Clean Energy Fund to the Indian Renewal Energy Development Agency to lend to renewable energy projects.   The scheme will have a life span of 5 years.

REAL ESTATE INDUSTRY

Interest deduction of an added Rs.1 lakh can be availed by first time hombuyers from their total income purposes, for loans of under Rs.25 lakh taken during this financial year.   This will move for demand for low cost homes. The allocation to Rural Housing Fund to provide finance rural housing has been increased to 50% and an allocation of Rs.2000 crore has been made for the creation of a new Urban Housing Fund. This will boost low cost and affordable home purchases in the rural and urban areas.

Tax deducted source 1% will have a negative impact on redevelopment projects as additional burden of compliance needs to be borne by the developers or passed on to the buyers.

AUTO INDUSTRY

Sports Utility Vehicle (SUV) manufacturers will now have cough up 30% excise duty from 27%.   The imported luxury cars will involve 100% import duty against 75% earlier.   Section 800C plus bikes is to meet 75% import duty from 60%.   The Finance Minister explained that SUVs occupy greater road and parking space and ought to bear a higher tax. Sops have been extended to electronic cars by 2 years.

DONATION TO POLITICAL PARTIES

The Finance Bill proposes that tax deduction will not be available to Indian Companies for sums contributed by way of cash to a political party or an electoral trust. The Central Board of Direct Taxes has come out with an ‘Electoral Trust Scheme’ which prescribed the grant of approval to an electoral trust.   Once an electoral trust gets the approval donors to such trusts will get 100% deduction for their contribution. Now it can be done only by non cash transaction.   The President of the Institute of Chartered Accountants of India pointed out that such a move would discover anonymous cash contributions/donations to political parties and helps identify the donor. It is also very much helpful to the Election Commission to analyze the flow of funds to the political parties and see whether there is any funding from a foreign source.   Political parties are barred to receive any fund from foreign source.

GEM SECTOR

The positive aspect of this sector in this budget, according to his sector, is that the basic customs duty on pre forms of precious and semi precious stones, other than diamond is reduced from 10% to 2%.   Concessional rate of tax of 15% on dividend received from its foreign subsidiary is proposed to continue for one more year. The levy of 4% excise duty on silver manufactured from smelting zinc or lead is considered as a dampener.

TEXTILE

It is very happy on the announcement of continuation of Technology Up gradation Fund Scheme, which is a blue chip program. The allocation of Rs.2400 crore under this scheme for the financial year 2013-14 would help attract more investments in the textile sector and improve the industry’s export performance substantially.

COMMODITIES TRANSACTION TAX

Commodities transaction tax comes as a dampener and disincentive for local enterprises in India.   It may post challenges for SMEs many of which are independent on non agricultural commodities.   The prices of many non agricultural commodities are get in international markets, Indian enterprises will be at a disadvantage in covering risks with cost effective hedging that may expose them to global volatility.

TAX ON ROYALTY

Fees for technical is payable for services of consultancy, managerial or technical nature.   FTS is liable to tax rate like royalty.   The increase in the rates is likely to have a significant impact on the cost of the imports.   This is an additional burden.

TELECOM INDUSTRY

The Telecom industry is now at severe stress tests with margin declining, financial debt at unsustainable levels and the growth rate is falling.   Still the telecom industry is considered as potential area to the Indian economy.   The budget expects to get Rs.40,847 crores from telecom services including the sale of spectrum and annual licence fee in 2013-14.

The telecom companies said that the revenue expected is optimistic. The Industry needs significant long term investments to build high speed broadband across the hinterland on the third generation and fourth generation technologies.   The Telecom sector is disappointed on not extending investment allowance to investments.   It is of the opinion of the industry that telecom industry has been among the worst sufferers.

BANK

According to the Finance Minister public sector banks are well regulated; they must also be adequately capitalized.   Rs.14000 crore shall be provided in 2013-14 for capital infusion.   The Finance Minister proposes to set up India’s first women’s bank as a public sector by providing Rs.1000 crore as initial capital.

 Since there are favors as well disfavors to the industries analysts opined that the budget is well balanced budget.