A recent ASSOCHAM Financial Pulse Study said that contrary to expectations, tax expenses of companies enjoying benefits of infrastructure status have gone up by 90.3% in Q1 of current fiscal as against those that are denied such benefits under category of Infrastructure Status.
The study said that this is due to perceptible improvements in realizations which contributed to better margins and improved bottom lines of such companies and increased their tax liabilities.
Under current statues, infrastructure status in conferred upon industries and companies engaged in activities like building expressways, highways, airports, ports and rapid urban rail transport systems. The sectors that are denied infrastructure status as per law of land includes hospitality, real estate, power and healthcare.
The Study reveals that in hospitality sector, tax expenses registered a negative growth of 131.2% as compared to corresponding period last fiscal. In real estate corporates tax expenses also recorded a negative growth of 82.1% during the period. However, corporates engaged in power and healthcare sector, the tax expenses between April to June 2009 recorded a marginal growth of 31.2% and 21.1% respectively.
Some of the analyzed corporates falling under beneficial category of Infrastructure Status whose tax expenses recorded an average growth of 90.3 per cent in first quarter of 2009-10 comprised Gammon Infrastructure Projects Limited 25.4%, GMR Infrastructure 67.9%, Lanco Infratech by 182.1% and Supreme Infrastructure by 85.7%.
The analysis carried out by the AFP Study took into account four infrastructure status seeking sector viz real estate, power, health care and hospitality (hotels) for their comparative analysis with the infrastructure sector companies into activities like building expressways, highways, airports, ports and repaid urban rail transport systems.
Mr Sajjan Jindal president of ASSOCHAM said that “In order to drive the Indian economy on a serious institutional reform led growth, infrastructure still remains one of the most critical issues requiring a fresh look at the core level.”
According to the Section 80-IA of the Indian Income Tax Act which allows a 10 year tax holiday to infrastructure developers, the sunset clause kicks in pretty soon and industry expects this scheme being kept alive for another 10 years. In this budget, only the power sector has been given a one year extension.
The Chamber chief added that “Infrastructure is considered to be one of the biggest constraints confronting the Indian economy which draw a thin line of distinction between being one of the fastest emerging economies and the supreme status of the fastest growing super-economic power.”
As per the Study findings based on the parameters signifying the benefits that accrue to infrastructure sector, per se, found no major difference between the performance of the general infrastructure sector with four sectors seeking the infrastructure status viz real estate, power, health care and hospitality. On the interest cost parameter, the real estate sector was found to be in maximum divergence with the general infrastructure sector with the growth in interest rate cost at nearly 97% versus 64.3% growth in the interest cost of companies in the infrastructure sector.
The hospitality sector which was amongst the severely hit segment due to the global economic downturn was next to the real estate sector on the basis of divergence in growth rate of interest cost. The growth in the financing cost of the hotels stood at 86%.
During the last quarter, the growth rate in the interest cost of the power sector has been found to be in line with the infrastructure sector at 64.3% whereas the healthcare sector which was resilient in weathering the economic crisis registered a smaller rise in the financing cost at close to 60% versus 64.3% growth in the interest cost of companies in the infrastructure sector.
Monday, September 14, 2009
Infrastructure status firms end up paying higher taxes - ASSOCHAM
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