Budget 2016: Infrastructure fifth support pillar in theme: Transform India

Samir Kanabar / Himanshu DoshiThe promise of infrastructure sector being the focal point of the Modi Government amongst the numerous policies envisaged has everybody’s eyes glued on the upcoming budget including the head honchos at major corporations to the common people. While Modi’s Make in India initiative has been capturing all the limelight and the focus recently, Union Budget 2016 has truly recasted people’s faith in the sector by emphasizing its spotlight on infrastructure as the 5th support pillar amongst the nine pillars deliberated and envisioned in the Budget theme and agenda ‘Transform India’. Budget 2016 allocates a comprehensive gigantic outlay of Rs 2,21,246 crores for the infrastructure sector, including railways. Over the earlier years, 85% of the arrested infrastructure projects suffering on account of heritage issues are now functional and back on track. 2015 also witnessed country’s highest ever kilometres of new highways and highest ever production of motor vehicles. Of the Rs 2,21,246 crores of the outlay planned, Rs 97,000 crores alone has been earmarked for road and highway connectivity, including through issue of NHAI bonds. Government anticipates approving approximately 10,000 kilometers of national highways and taking up 50,000 kilometers of state highways for up-gradation as national highways during the proposed year. As a means for bolstering and augmenting spending on the sector, the Government has sanctioned the mobilization of additional funds to the tune of Rs 31,300 crores sourced through the issue of government held bonds. Government has also earmarked an amount of Rs 3,000 crore per year together with public sector investors for boosting investments in nuclear power generation. The FM has also provided policy measures for the aviation sector by announcing its plan for revival of 160 unserved and underserved airports and airstrips with the State Governments by allocating Rs 50-100 crore for each. 10 of 25 defunct airstrips will be developed in partnership with state government. This shall act as a stimulant for the attainment of regional air connectivity. While these measures have been taken up, the Government announcing an excise duty hike of 6% on aviation turbine fuel has dampened market spirits. Last year saw India’s major ports handling the highest ever quality of cargo and also added highest ever capacity in major ports. The much awaited Sagarmala project with a proposed investment of Rs 70,000 crores has already been rolled out and Rs 800 crores has been allocated for modernizing the ports, increasing their efficiency and developing new greenfield ports in eastern and western coasts. The PPP players would have heaved a huge sigh of relief as the Government lastly released the much anticipated announcements for incentivizing the sector. The announcements consist of setting up a public utility to streamline institutional arrangements for resolutions of disputes, introducing the guidelines for renegotiation mechanism and creating a new credit rating system which emphasizes various in-built credit enhancement structures. This three point action plan is likely to address the long awaited funding for derailed projects and can put them back on track. With a view to provide impetus to the Indian Strategic Petroleum Reserves Limited initiative, Budget 2016 exempts the income earned from storage and sale of the crude oil by foreign companies from tax in India.On the tax front, profit linked deduction available from the infrastructure facility has been phased out but instead investment linked (capex) incentive shall now be available post 1 April 2017. Further, specific exemption has been provided from tax on distribution made by special purpose vehicle to its trust. In order to incentivize capital expenditure in the power sector, additional depreciation shall be available on the plant & machinery acquired and installed for transmission activities. The budget unfolds proposed additional levy of an infrastructure cess @ 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles and SUVs. This will pave the way for eco-friendly vehicles.Further, to keep in line with the Government’s prominence to the sector, services provided to the Government by way of civil construction contracts and original works pertaining to an airport or port have been exempted from service-tax for contracts entered into before the withdrawal of exemption. However, withdrawing of service tax exemption for original works pertaining to monorail or metro for future contracts does not align with this objective. CVD exemption on specified machinery for construction of roads has also been withdrawn to meet Make in India missions and provide equal opportunity to domestic manufacturers.Surprisingly, while there has been no special mention about the way roadmap for the introduction of GST, the big push granted to the infrastructure sector can be perceived in the amendments that have been carried out. It will be interesting to see how Government is able to clear the path for land reforms, without which all these aforesaid measures could remain a distant and unachievable dream. The Infrastructure sector is poised to grow tremendously and while the Government has strived to provide ‘exemplary’ and ‘proactive’ steps to boost this sector, there is still a mélange of challenges and regulatory uncertainties that would have to be addressed over the coming months to keep up with the Governments ultimate intention of driving the Indian economy onto a renewable growth trajectory.Samir Kanabar Tax Partner, EY and Himanshu Doshi, Director, Tax and Regulatory Services, EY