: Interconnectivity charges are payable between interconnecting operators for actual usage of each others networks, to originate, transmit, or terminate a call. Typically, a telecom service provider would make payments to foreign telecom operators for use of latter’s networks. One view is that use of network implies use of equipment or process and that payment for such use constitutes royalty taxable in India. Another view is that such payment is for use of a facility which does not constitute royalty. In such a case, the payments received by the foreign operators are not subject to tax in India since they are for provision of services and do not involve any type of royalty payments.
: The matter may be clarified to avoid litigations.
Issue: The provisions of Section 10AA(5) of the Act could lead one to conclude that a SEZ Unit transferred to another person other than in a scheme of amalgamation or demerger would lose the tax holiday for the remaining period of the
Expectation: Considering that the tax benefit is associated with the SEZ undertaking and not its ownership, other forms of transfer like slump sale may be specifically incorporated in Aection 10AA(5) so that there is clarity on this issue.
— Rajiv Anand, Executive Director, PricewaterhouseCoopers
The finance minister needs to think beyond import duty reduction in this year’s budget. Aiding healthcare service delivery should be the prime focus of the finance minister. The draft eleventh five year plan talks about private-public partnership (PPP) models for improving healthcare infrastructure and service delivery. Incentives need to be provided by the finance minister to the private sector to invest in and benefit from projects in the healthcare sector.
This could be in the form of tax holidays for healthcare projects in specified areas or tax relief to firms working to augment healthcare manpower skills and training. Providing infrastructure status to the healthcare industry will reduce the cost of the overall healthcare projects and encourage private investments. While the initial results from NHRM are encouraging, continued funding for the scheme should be linked to improvements in health indices.
Reducing the minimum capital requirements for health insurance companies would bring down the entry barriers, stimulate competition and allow the people to benefit from innovative products and lower costs. Several hospitals in India are seeking to acquire international certifications like JCI. Providing incentives for such hospitals would ignite interest in this process and lead to significant improvements in overall quality of healthcare systems.
- Krishnakumar S, Principal Consultant, PricewaterhouseCoopers
Oil & Gas Sector
In order to provide a level playing field amongst different primary energy sources, NG and LNG may be included in the Chapter IV (Section 14) of the CST Act 1956 as “Declared Goods”.
E&P industry expects that a scheme for “refund of service tax paid by E&P entities” on services consumed for exploration and production purposes may be formulated in the lines of scheme for refund applicable for export of the goods.
Gas industry expects that the following issues related with tax holiday may be clarified to bring further clarity:
* Definition of “cross country gas distribution network” and “pipeline and storage
* Income tax Act states that 1/3rd of the total pipeline capacity to be available for use on common carrier by third party which
is in conflict with pipeline policy which provides for 1/3rd of the committed pipeline capacity.
Oil marketing companies are expecting that excise and customs duty on petrol and diesel may be reduced which will improve their recoveries. Industry expects that customs duty will be waived on import of materials namely pipes, valves, flanges, data communication system for laying of petroleum products and gas pipelines to provide impetus to infrastructure development.
Deepak Mahurkar, Associate Director, PricewaterhouseCoopers
We must help our country move up the value chain by supporting R&D and protecting IPR. We would like to see more simplification of taxes. Above all, we would like to see a vision to design health architecture for our country where lifestyle diseases, HIV and other neglected diseases like malaria are increasing at an alarming rate. This could affect the lives of our young working population and potentially impact GDP growth numbers.
We also hope that budget stays away from price control as the industry is already a very cost-effective producer of drugs.
However, the budget should immediately address the following:
* Extending R&D sops to newly demerged R&D – Under Section 35 (2AB) 150 per cent weighted deduction is enjoyed by companies engaged in the business of biotechnology or in manufacturing or production of drugs or pharmaceuticals, for expenditure incurred on scientific research undertaken in in-house R&D facility (approved by authority). The government should further extend this benefit to newly demerged R&D
* To enable consolidation of pharma industry by assisting in more mergers and acquisitions. We need reforms of M&A laws, capital gains on share swaps and labour reforms for SSIs.
*The pharma industry enjoys certain area- based excise exemptions like in Himachal Pradesh, Uttar Pradesh, Jammu & Kashmir. But because of this, their ability to get CENVAT benefit on input services is impaired. The government must address this.
* Pharma industry works on the job-work model. In such a model there is no clarity as to how they get CENVAT benefits on input services used at job-work places.
— Sujay Shetty, Associate Director, PricewaterhouseCoopers
One, Section 80IA of the IT Act recently amended to restrict deduction to amalgamated or resulting company, by providing that sub-section (12) shall not apply to any undertaking or enterprise which is transferred in a scheme of amalgamation or demerger on or after April 1, 2007. To ensure robust growth of infrastructure industry, this amendment should be omitted.
Two, exemption available to infrastructure capital fund/capital company or co-op bank under Section 10 (23G) of the IT Act to be reintroduced to encourage investments in roads, bridges, water supply projects etc. necessary for growth of economy.
Three, Road development projects undertaken by NHAI to be totally exempt from customs duty. This will enable companies undertaking projects with NHAI to import better capital goods and latest technology for construction of better roads.
Four, all input services consumed in infrastructure projects should be exempt from service tax. This would help reduce the overall burden of the input cost for these projects making their effective use cheaper for the industry.
Finally, the rate of VAT on cement (currently at 12.5 per cent), should be aligned with similar important construction materials like steel at 4 per cent.
— Krishan Malhotra, Executive Director, PricewaterhouseCoopers