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New direct taxes code likely to hit PFC ops
October, 29th 2009

The new direct taxes code (DTC) is expected to hit hard the state-run Power Finance Corporation (PFC) whose cumulative sanctions crossed Rs 2 lakh crore and disbursements Rs 1 lakh crore in the fast changing Indian power sector.

PFC in its presentation to the Centre argued that provision of minimum alternative tax (MAT), withdrawal of tax exemption under special reserve, under reserve for bad debts and introduction of long-term capital gains tax would severely impact its operations and the power sector in general. Besides, over-riding provisions of double taxation treaty may increase withholding tax on interest payments on ECBs.

PFC official told FE, Implication of MAT on power projects will be quite severe as it may affect cashflow of the borrowers and consequently loan servicing ability of borrowers. The centre also needs to reconsider provisions of restricting benefit of tax exemption for infrastructure companies under section 80 (IA) and shifting the benefit of depreciation on financial lease assets from lessor to lessee."

The official informed that PFC has already taken up the matter with the power ministry and hoped that the centre may review these provisions including MAT and over riding provision of double taxation treaty agreements.

PFC, which had not gone for foreign currency loan for last two years due to economic downturn and other adverse factors, plans to raise $300 million through bond issue or syndicated loans. PFC fears that the over riding provisions of double taxation treaty may increase withholding tax on interest payments on its proposed foreign currency loan.

Mumbai-based analyst said PFC's concern is to be seen in context with the requirement of funds of over Rs 11 lakh crore in 12th plan for capacity addition of over 80,000 mw and the related transmission and distribution projects.

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