Govt rules out tax holidays for power sector, port trusts

Source:

Economic Times (23 Apr 2010): Govt rules out tax holidays for power sector, port trusts

The government has rejected demands for tax exemption on setting up power plants, state maritime boards and port trusts, saying it was inconsistent in a moderate tax regime. 

Regarding tax holidays for setting up power plants, Minister of State for Finance S S Palanimanickam said the power sector, particularly the private sector, has significantly matured, benefitting from direct tax holidays for almost two decades and there was no need for any extension. 

"There is no proposal under consideration of the government to provide further extension of tax holidays for setting up of power plants in terms of direct taxes," he said. The minister added that tax incentives like exemptions and deductions are economically inefficient, inequitable, lead to revenue loss, breed rent-seeking behaviour, increase compliance costs and enhance the administrative burden.

"The case for tax incentives is further weakened in the existing tax regime of moderate tax rates. Therefore, as a matter of principle, government has taken a considered policy decision not to support tax incentives and to allow minimal exemptions and deductions," he said. 

However, in the power sector, as far as indirect taxes are concerned, all items of machinery and equipments required for initial setting up mega power projects are fully exempt from duties and customs. All such goods domestically procured for initial setting up of mega power plants awarded on an international competitive bidding basis or tariff-based bidding are also fully exempt from payment of central excise duties. 

"These exemptions are available without any specific time limits," Palanimanickam said.

The tone of this statement coupled with the non-extension of the STPI and EOU schemes in the 2010-11 budget indicates that Government policy may be trending towards a moderate taxation regime with minimal direct tax incentives in the 5-10 year timeframe. Watch out for the new DTC policy due later this year!