Mumbai: Having done a comprehensive survey, Grant Thornton has released several pointers indicating its expectations from the Budget. Rohan Phatarphekar, National Head of Tax & Regulatory Services at Grant Thornton enumerates.
Excerpts interview with Rohan Phatarphekar:
Q: Let us start with the capital markets - what are you expecting there?
Ans: Corporates are not really expecting a change in the capital gains taxation as such, nor would there be one in Securities Transaction Tax (STT). I think overall they are not expecting anything negative to be introduced, which would affect the sentiment and I think our survey showed that the corporates are expecting the capital markets to go up on the Budget day.
Q: What about real estate?
Ans: Our survey showed that corporates expected the FDI regulations to undergo a change. They wanted more liberalization on the real estate front, but again that is not so easy. The more liberalisation takes place, the demand for real estate would go up and obviously the prices would go up and I think that is something, which may not happen. There is further liberalisation of FDI and real estate.
Q: Which sector did you see the most material expectations from in terms of taxation changes?
Ans: I think Information Technology is something which people have huge expectations about. 73 per cent of the corporates that we polled expected the tax holiday to continue. While the window for tax holiday is getting over as of a couple of days down the line, with the SEZs coming in, they expect that similar such benefits should be allowed to other units that are existing.
Again in IT, one of the suggestions of the industry was that the government should actually make some efforts in sponsoring or creating a skilled work force, which in over a period of time becomes helpful for the industry.
On the pharma side, there is a 150 per cent deduction that is allowed today, but that window is closing on March 31, 2007. That is something which is basic to the pharma industry. So that is again something people expected definitely to be extended.
I think one of the important aspects of pharma was that due to the patron regime, if the government wants to encourage Intellectual Property Rights (IPRs) being created in India, then they expected that any income pertaining to that should qualify for that tax holiday. I think that is something that was quite heartening to do.
Q: What about indirect taxes? What kind of expectations came in from industry on the indirect tax front?
Ans: There are various aspects to this. Corporates expect the peak custom duty to come down to 10 per cent. Service tax has gone up last year to 12 per cent from 10 per cent but over a period of time I think it would be 14 per cent and as the Finance Minister has indicated as of April 1, 2010, the Goods and Services Tax (GST) would come into picture and that would be around 16 per cent.
But they do not expect any basic change in service tax although the services under the net would be higher as compared to what probably would be last year.
Q: Aside from real estate, was there any specific expectation on the SEZ front?
Ans: From a technical and a tax perspective today there is a tax holiday that is available, which prohibits one from taking advantage of the tax holiday in the sense that one cannot reconstruct an existing business and take advantage of that.
Similar such provisions do not exit in the existing SEZ policy, so one of the concerns obviously was that lot of the existing Software Technology Park, STP, units would move over to SEZs and the tax holiday would be then taken.
One can expect some introduction of reconstruction clause similar to that what existed in the existing tax holiday to be introduced on the SEZ kind of a policy.
The other thing in the SEZs is that we hear everyday that many corporates want to set-up SEZs- one wonders who would be there to occupy the SEZs. So corporates expected that there should be some kind of a cap on the SEZs, industry or sector wise, but definitely there needs to be some kind of a cap because that would be help in making this policy useful.
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