Dividend distribution tax should be abolished: L&T

On his wishlist for Budget 2007, CFO at  L&T, Y M Deosthalee says that the thrust on infrastructure must continue.

He says, “The government must not only commit higher resources to the Infrastructure SPV but also show its eagerness to the infrastructure formation in the country if private parties are to participate.”

He further says that Dividend distribution tax should be abolished and FBT should be rationalised.

Excerpts from moneycontrol.com's excluisve interview with Y M Deosthalee:

Q: What would be on your wishlist for Budget 2007?

A: Thrust on infrastructure must continue. The government must not only commit higher resources to the Infrastructure SPV but also show its eagerness to the infrastructure formation in the country if private parties are to participate. My wishlist includes:

-FBT rationalization is required: Companies should not be paying taxes on legitimate business expenditure not involving any personal element or privilege. Even if FBT has to stay, then it should be strictly confined to expenses incurred in relation to the employees like Employee Welfare Expenses, Motor Car Expenses, Scholarships, Gifts and Holiday Homes.

- Dividend distribution tax should be abolished: Even though exempt in the shareholders' hands, it still results in double taxation.

- Dividends received by an Indian company from a foreign company that is either its subsidiary or a joint venture, though received in foreign exchange, are taxable in India. In order to encourage investments by Indian companies abroad, such dividends in foreign exchange should be made tax-free.

Q: There is still a huge concern in-terms of India's infrastructure development, which has not kept pace with the kind of GDP growth and investments the country is witnessing, what is L&T's view on this?

A: Years of underinvestment had caused significant undercapacity across segments. It was hence imperative that significant capacity additions should be undertaken to meet demand. Moreover, even the existing capacity needed to be upgraded to improve service levels and efficiency to global standards.

The infrastructure spend of any economy is linked to its rate of growth. The Indian economy has grown by an average of 8% in the last 4 years.  With the current growth drivers, the economy is expected to grow by 9% in the 11th five year plan. The growth could have been higher, if the there was better quality infrastructure. There are shortfalls in every sector.

The expenditure on infrastructure to GDP in India is around 5% and is very low compared to our peer group of countries ad not to mention China where the ratio is 15%. For the 11th plan this ratio is expected to double to about 8%. This needs to increase further.

Q: Government policies, volatility in input costs (raw material, fuel) are some of the challenges that infrastructure companies face? How does the scenario look, going ahead?

A: We believe that there is broad consensus across the political spectrum on the need to step up investment in infrastructure. The increased emphasis on the BOT mechanism has eased the perennial problem of fund shortage. Lower demand on state funding would mean less political maneuvering for grants and faster project clearance.

Price increases particularly of raw materials and fuel are a matter of concern. In the last 2 years most commodity markets have peaked driven by the strong global demand and inadequate addition to capacity. As a result, the world supply lagged creating price shocks. In particular, crude prices saw historical highs putting great strain on oil import dependant countries, such as India.

This in turn added to inflation, affecting margins of companies. Going forward we expect the commodity prices to remain tight although the earlier peaks may not reoccur. The anticipated slowdown in the global economy would temper the price rise to a certain extent.

Cont on pg 2...