Oil and Gas – Fueling Nations’ Growth

There has been quite a bit progress last year in the Oil and Gas Industry. This is welcome since there was a four-year hiatus after 2002 when de-regulation was announced. The most important development was the enactment of the Petroleum and Natural Gas Regulatory Board Act. Also some of the Rangarajan Committee recommendation have been accepted for checking the growing gap between international prices and domestic retail petrol and disel price. FICCI, time and again has urged to Government the Rangarajan Committee recommendation should be implemented in toto.

A 10 year tax holiday under Section 80 IA be granted to pipelines, storage terminals and other related facilities for transportation and storage of petroleum products. In other words, these gas pipelines and associated infrastructure should also be granted infrastructure statues.

It has to be appreciated that in the initial few years there is hardly any profit to take advantage of the tax holiday provisions under this section. Also, during the initial seven years period of tax holiday, companies have large expenditure to set off and hence actual benefit of tax holiday in respect of 100% of its profits for seven consecutive years at any time during the first 15 years after the commencement of commercial production, to make the incentive really meaningful.

Petrol and Petroleum products should also be brought under the VAT regime with uniform VAT rate across all States. The rate in any case should not exceed 12.5%.

 Cement- Towards Stronger Infrastructure

India is the 2nd largest Cement manufactures in the world, though per capita consumption is low at 125 kg in comparison to 450 kg in Thailand, 800 kg in China, 600 kg in Malaysia and 960 kg in South Korea. The imposition of Various General as well as State levies constitute a significant portion of the ex-factory price, which is quite exorbitant. Contrary to this, the average tax on Cement in 17 countries in Asia Pacific is around 14.4%.

The specific rate of excise duty at INR 400/Mt is almost 33% of ex-factory. India is INR 984/Mt, which is almost 1/3 of the sales price for a “basic” infrastructure product.

 Pharmaceuticals- A Healthy Figure

Pharma industry in India is in the forefront of globalization by aggressively capturing the international markets. In particular, Indian pharma companies are focusing on capturing the western European and US markets, thereby contributing in a positive manner in earning the foreign currency for India.. Indian pharma companies invest aggressively in research and development activities.

Benefit of 150% weighted deduction should also be extended to the investment made in land and building. Similarly, customs duty, excise duty and service tax should also be waived for the capital goods, revenue expenditure, as well as for the services received by R&D units.

Indian pharma companies are also aggressively investing in R&D activities so as to obtain the regulatory approvals from the countries belonging to Western Europe and US. This expenditure, at present doest not get 150% weighted deduction. It is widely felt that extending the weighted deductions for above expenditure will help the Indian pharma companies investing in R&D to obtain these approvals and increasing the exports to the developed world.

 Bio-Technology – An Alternative Emergence

The draft strategy as formulated by the Department has tried to take a holistic look at the present scenario and suggest several measures in a defined timeframe to promote innovation and manufacturing, to create world-class human capital, build quality infructure and address the basic needs of the society. The goal is to push revenue generation in the sector to US$ 5 billion and generate I million jobs by 2010.

Expenditure incurred on clinical trials by companies is currently not accepted as an expense to be included for weighted tax deduction @ 150% under section 35 (2AB) of Income Tax Act, 1986. it is submitted that the tax benefit should also be extended to expenditure incurred on clinical trials for all companies. Since expenditure incurred on scientific research is allowed; there is no reason why it cannot be extended to clinical trials as well.

 Information Technology- The Next Level

Today the software industry in India is nearly Rs. 1,30,000 crore (US$ 29.5 billion dollars of which US$ 23.4 billion is export) contributing to about 20% of the nation’s exports. India’ s vibrant IT software and services industry has been projected to reach an export potential of US$ 57 to 65 billion for the software and services sector by 2008.

Indian ITES - BPO sector industry continuous to grow from strength to strength, witnessing high level of activity – both onshore as well as offshore. The IT and ITES – BPO sector has become the biggest employment generator amongst young graduates with the number of jobs almost doubling each year.

In the last Union Budget, 8% excise duty was levied on packaged software sold over the counter. This has led to an increase in piracy of software, which is already amongst the highest in India at 74% (as compared to 53% in the Asia Pacific region and 35% World Wide).

It is worth noting that the incidence of increase would not only by 8% as it would be compounded further due to (i) cost of Complicance; (ii) Cost of Extra administration and (iii) Distraction from the core activity of development of software.

With regard to software, it is important to note that the same is nor taxed in this manner anywhere in the world send negative signals regarding Indian being the most favoured destination for IT and IT related activities