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Direct taxes: Industry expectations from Budget 2010
February, 25th 2010

The Confederation of Indian Industry (CII) is positive that Finance Minister Pranab Mukherjee would in his Budget 2010 speech pave the way for growth in industry by rationalising direct taxes. The CII believes that it is one of the few policy tools that the government has in its armoury to strengthen its position and to take the country forward to the next level of growth.

In a special CII-CNBC-TV18 panel discussion on direct taxes, TN Manoharan, Chairman of the National CII Committee on Accounting Standards and Taxation, Yogesh Mathur, Group CFO and Moser Baer and Rostow Ravanan, the CFO of Mindtree Ltd gave industry's expectations from Budget 2010.

Q: Lets begin by talking about industry expectations from the Budget on the direct tax front, what are the broad expectations?

Manoharan: Actually the industry is expecting a lot on this budget for the simple reason that the Indian economy is in the process of recovering from the slowdown that happened in the last two years. And 2011 is going to be a watershed year for India primarily because the GST sought to be introduced, the new Company Law Bill and IFRS Convergence.

So in the light of that the reforms that will facilitate the growth of industrial development and also facilitating the R&D and acceleration of investment these are all the expectations of the industry as such.

Q: What are the specifics that you would want to see from the budget?

Mathur: The world is looking at India as a future growth engine for the global economy and it is time for us to position ourselves well and the capital formation is a significant factor. The priorities with which it is deployed become very important.

On Budget expectations, I think one would do and there is a challenging task ahead because one does have the reform process to continue and there is the direct tax code to look at and to decide on and take meaningful positions on.

But there is also the short and the long term growth agenda. There are long term strategic plans that the government has set up. There are challenges of the five year plan and also anomalies and governance issues that the government needs to deal with. So there is actually a mixed bag of things there.

Q: So what are the short term direct tax related measures, the top three points that you want to see in the budget?

Mathur: One would want to see from an industry standpoint, a very hard look at supporting industry in areas which are important for the economy. I would include exports and I would also factor in that the exports sector does need to be globally competitive.

But there are areas wherein todays economy does need support. Capital formations specifically for the 2-3 key challenges that we still face where capital is important and that includes infrastructure and that now includes renewable energy in general and solar in particular. Certain aspects of taxation reforms that need to be looked at quickly.

Q: From your point of view what are the key expectations that you have for the entire sector that you really represent?

Ravanan: Two levels. One at a macro level for the country as a whole, I think a lot of people I would obviously expect some support for infrastructure and the traditional infrastructure investments in terms of roads, ports etc are covered by everybody. I think there is an urgent need to improve the softer infrastructure more specifically education and healthcare.

You travel anywhere in India, outside of the large cities the quality of education and healthcare in India is really poor. I dont think we can proceed for all the growth ambitions that we have unless that crying need is immediately addressed. So that is one macro kind of an objective which we need to look at and hopefully the Budget will make some programmes around that.

More specifically for the industry, I would have 3-4 points in my wishlist and I realise that the Budget is coming on February 26 and not December 26. So it is not Christmas time and therefore I am not having very high hopes on the STPI holiday getting extended.

But my crying need for the industry would be there is a huge anomaly in the way exemptions for SEZ units was drafted into the Income Tax Act. A lot of us in the industry have committed huge amounts of capital both in terms of physical infrastructure as well as hiring on the basis of the promises made in the SEZ Act and the Income Tax Act doesnt live up to that.

So connecting the anomaly in Section 10 (AA) of Income Tax Act I think is a high priority. I think for all of industry more specifically manufacturing, I would say reduction of the MAT from 15-10% would be critical because manufacturing worldwide continues to be slow.

Probably India is a little better right now. But I guess that little bit of cash flow support that can come by reduction of MAT, I think is a critical requirement. From a corporate perspective, I think redoing the rules by which Indian companies can avail of credit for taxes they paid overseas, at least in our industry is pretty much global industry where pretty much 80-90% of our revenues come from outside the country because we are an export oriented unit adjusting that credit of taxes paid overseas I guess is also a very critical requirement.

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