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Govt must reduce tax rate, eliminate exemptions
February, 25th 2016

Tax exemptions is on the top of corporate India and foreign investors' Budget wish-list but Saint Gobain MD, B Santhanam does not seem to agree with this idea as he is not in favour to drive long-term investment by short-term exemptions.

Santhanam told CNBC-TV18's Jude Sannith that he is not a fan of state level exemptions and favours the reduction of the overall corporate tax.

Commenting on transfer pricing he said that it is making ease of doing business difficult.

If two domestic companies are making profit and paying taxes then transfer pricing guidelines should be eliminated, he said.

The fall in crude price allows manufacturing company’s like Saint Gobain to save a lot on logistics. However, Santhanam opines that this benefit is transient and it might not be there in the next two year.

Savings on crude should be put to use for infrastructure growth, he added.

Below is the verbatim transcript of B Santhanam's interview with Jude Sannith on CNBC-TV18.

Q: What are your expectations from the Budget?

A: A large part of it is going to the export markets. We have identified this as a manufacturing hub for high value added products for Middle-East, Africa, ASEAN countries. Therefore, a lot of this investment is for very high value addition. One interesting thing between the time when we made the announcement that was exactly one month, we are accelerating this investment. We are pushing it forward and part of the reason I missed the Make in India in Mumbai is we were negotiating with vendours for large equipments.

It is absolutely vital that we don’t drive our long-term investments based on a short-term exemption, which will change. We are not a fan of state level exemption. For me, what is important would be to reduce the overall corporate tax to a manageable level, which is in the 20-25 percent zone.

Globally that has seen as a very competitive, there are some which are much lower than that. Most of the countries in the ASEAN are in the range of more than 20 percent. So, if we do that then it makes our case for Make in India that much better because at the end of the day, what drives investment is the net present value and the internal rate of return.

Q: Corporate tax is something that you have been talking about but also transfer pricing is something very crucial.

A: I think the transfer pricing is making our ease of doing business very difficult. The problem is we do a lot of global transfer. We are part of the manufacturing ecosystem so we buy some raw materials from our parent companies, we export it back.

Now at every stage, we have to justify a fair pricing. It becomes a task. Therefore can we have very clear model case study for different industries, this is what we want to do. So that the assessing officer does not have a huge leeway in interpreting. At the end of the day, we want to avoid that interpretation that will force each assessing officer to take a different route. If he can do that, the ease of doing is far better.

So I don’t have to invest my time thinking about what will be the implications for transfer pricing. Even in research and innovation out of India has a lot of transfer pricing issues which we have complexities. There is also increasingly domestic companies, Indian companies and they are transferring from one company to other company, especially both are profit making, why complicate the transfer pricing guideline.

So that is something which we have to say, what is the benefit of this guideline, are we trying to make a very complex regulation for catching something which is very simple.

Q: For a manufacturing company much like yourself, a whole lot of logistics, a whole lot of shipping, definitely the fall in crude gives some amazing opportunities, but you feel the country is capitalising on its oil bonanza?

A: The concern I have is in my company, we say that the benefit of this low oil price is transient, it may go up in two years. So we must not build our long-term strategic and competitive advantages through this lower price of crude. It is very likely it will stretch it to the next two-three years.

So what we say is that can we calculate our results based on a future oil price. India should say that the oil price at USD 35 per barrel today is not real. The difference in the USD 25 per barrel, which accrues partly to consumers and partly to the exchequer, I put that into the strategic use rather than I use it to reduce my fiscal deficit.

Can we say that every single money that is accrued because of this oil bonanza can we put that to strategic use like we did for the highway fund, that we are doing for education, can we earmark that for driving infrastructure, innovation and growth rather than use it to fund our fiscal deficit. So that can give us an artificial sense of comfort which can vanish the moment this oil bonanza reverses.

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