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Union budget fy12


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Union budget fy12

  1. 1. Union Budget FY12: Implications for the Transportation & Logistics Sector - Zubin PoonawallaThe Union Budget FY12 has been a mixed bag for the transportation & logistics sector. While re-stating the focus on GST & FDIin multi-brand retail is a welcome move, the lack of critical sops such as infrastructure status to the wider logistics industry &setting up an inter-ministerial logistics body at the Union level for integrated & quick decision-making is a lost opportunity.Diving deeper into the budget announcements, we analyze key aspects of the Budget in this research document while alsocapturing significant policy & market developments that have taken place in the last one year.The year that went by – a quick glimpseMacro-economic perspective • The GDP growth for FY11-12 was projected at around 9%; however, the actual GDP growth estimate is only at 6.9 %. At the same time, sight must not be lost that in comparison to the other economies of the world, India still remains amongst the front runners.Industry size • Transport & logistics sector which is estimated to be over USD 90 billion is likely to grow at about 10-15 % CAGR till FY15.Road sector • In FY11-12, 1,250 kms of roads have been developed under NHDP & further projects of 4,374.9 kms have been awarded. Road sector requires an estimated investment of Rs 6.11 lakh crores out of which 38 % would be contributed by private sector.Port sector • The past year has witnessed increasing thrust to timely meet the milestones stated in the Maritime Agenda 2020 which has been targeting over 3,000 MT port capacity by FY20. Also, in FY12 the government proposed to develop two new major ports, one each on east & west coasts & build facilities for full mechanization of cargo handling & movement. Additional proposed policy measures also target corporatization, formulation of a new land policy for major ports, & establishing of a port regulator for all ports for setting, monitoring & regulating service levels & technical & performance standards. • The slow pace of implementation of projects under NMDP (2005-12) has led to only 20 % of number of • projects & planned investments being realized till FY10 against a time line of 100 % completion in March 2012.Rail sector • Freight loading by railways was 618.0 MT as compared to 593.4 MT reflecting an increase of 4.14 %. The Vision 2020 document of the Ministry of Railways projects investment need of INR 7,20,000 crore for the sector.Airline sector • Domestic & international airline passenger traffic registered growth of 19.4 % & 7.7 % respectively. The sector would be supported by an investment of over INR 80,000 crores.Policy developments • A harmonized list of main sectors & sub-sectors of infrastructure has been approved by the government to serve as a guide for all agencies responsible for supporting infrastructure • While 100 % FDI in single-brand retail has been permitted under approval route earlier in the year, the Budget has re-emphasized government’s focus on permitting 51 % FDI in multi brand retail. • While the DTC is to be introduced soon, the implementation of GST has been pushed to August 2012. • Airlines have been allowed importing ATF for their own consumption under open general license. Further, VAT on ATF has been slashed to 4 %. Airline sector has also been allowed to procure ECB for working capital with a cap of USD 1 billion for one year. FDI up to 49 % in aviation sector is also under consideration. • To boost the funding for road sector, NHAI is allowed to issue INR 10,000 crore by way of infrastructure tax free bonds. • Set-off of export receivables against import payables has been liberalized providing powers to AD Category I Bank easing compliance requirements. Export payables & receivables can be thus netted off subject to the prescribed conditions. • Maritime Agenda 2020 has been formed targeting 3,130 MT capacity for ports by FY20. The government proposes to develop two new major ports, one each on east & west coasts & build facilities for full mechanization of cargo Page 1Confidential © Poonawalla Consultants Pvt Ltd
  2. 2. handling & movement & plans to develop of two hub ports each on west & east costs. The proposed policy measures also targets corporatization, formulation of a new land policy for major ports, & establishing of a port regulator for all ports for setting, monitoring & regulating service levels & technical & performance standards. • • Government is encouraging PPP projects in areas such port connectivity projects, container operations, wagon investment schemes & private freight terminals. The ministry is in process of finalizing a comprehensive draft policy emphasizing models for specific category of project. • Tax treaties have been signed with Ethiopia, Taiwan & Taipei, providing impetus to foreign shipping companies from these countries to commence operations in India. Protocol to Treaty with Switzerland entered into force, amending Shipping Article to provide that shipping profits would be taxable only in Switzerland. • Recently, the standing committee in the proposed Direct Tax Code has recommended that import freight received outside India should not be chargeable to tax in India.Budget proposal for income tax • No change in corporate tax rate has been proposed and effective rate remains 32.45 %. • Alternate Minimum Tax has been proposed to be leviable on all forms other than companies who have claimed profit deduction under Chapter VIA • Rate of daily tonnage income under the tonnage tax scheme is to be increased which would lead to higher tax outgo • Investment linked incentives under section 35AD are to be extended to CFSs, Inland Container Depots & warehousing facility for storage of sugar. The existing allowance of deduction of capital expenditure for business of warehousing of agricultural produce & cold chain facility is to be increased from 100 % to 150 %. • The quality of warehouses is expected to go up. CFS/ ICD set ups are expected to benefit from stuffing/ de-stuffing services. The ICDs located in UP & CFSs in Gujarat & Maharashtra are expected to be benefited the most. • Further, the announcements in the budget are expected to encourage development of single-commodity, small size warehouses across geographies. • The payback period for cold chain assets is expected to get reduced from 6-8 years to 5-6 years. • Withholding tax rate on interest payments on ECB availed by airlines, roads, ports & shipping sectors is proposed to be reduced from 20 % to 5 % which would help companies to look at overseas market for their borrowing needs. Generally the contracts for ECB are not net basis wherein the taxability is to be borne by Indian companies & thus involve higher cost. Owing to change in rates, the cost would significantly go down. • Transfer pricing provisions have been introduced for domestic transactions claiming deductions under Sections 80-IA & 80IB. • Advance Pricing Arrangement is to be introduced with effect from 1 July, 2012 for better assurance on transfer pricing method & is conducive in providing certainty. • General Anti Avoidance Rule (‘GAAR’) provisions are to be introduced to clamp down on tax avoidance. • Section 9 has been proposed to be retrospectively amended to provide that capital asset being any share of a foreign company shall be deemed to be situated in India if the shares derive its value substantially from assets located in India. Definition of royalty is to be amended to specifically include consideration for use or right to use computer software settling long drawn controversy on the issue. • Retrospective amendment has been proposed to give powers to Dispute Resolution Panel (DRP) to enhance income. The Assessing Officer is to be also provided powers to appeal against order of DRP to Tribunal. • TDS provisions would be rationalized to provide that payer would not be treated as assessee in default in case the payee files return of income offering the amount for tax on which tax has not been deducted amendment would take effect from 1 July, 2012. Also, the amount would not be disallowed under section 40(a)(ia) in the hands of payer. • Rate of Dividend Distribution Tax (DDT) has remained unchanged at 16.221 %. However, cascading effect of DDT in multi-layer structure is proposed to be rationalized. Dividend received by Indian companies from outbound investments (holding more than 26 % shares) is to be taxed at the rate of 15 % for one more year. • Scurrilities Transaction Tax (STT) rate has been reduced by 20 % to 0.1 % which will bring down cost of equity transaction.ConclusionOverall, the Budget is forward looking since it addresses several operations & tax concerns for the industry. However, giventhat several critical industry expectations are yet to be formally appreciated by the policymakers, the industry stakeholders,both supply-side players & end users, perhaps need to together reinforce the demands more effectively than ever before. Page 2Confidential © Poonawalla Consultants Pvt Ltd