Mumbai: Even as the economy has recovered well from the impact of the global financial crisis, there is a need to accelerate the investment momentum. Recent data shows that the rate of investment has declined from 38.1 per cent in 2007-08 to 36.5 per cent in 2009-10.
Confederation of Indian Industry (CII), therefore, expects the Union Budget 2011-12 to help reverse the trend by introducing certain innovative fiscal measures.
"The Union Budget 2011-12 would have to explore many options to see that growth of the economy remains robust next year and beyond. Emerging challenges such as rising input costs and interest rates amid still subdued global demand will have to be dealt with," said Chandrajit Banerjee, Director General, CII.
CII said that the policy instruments available to the government in the form of direct taxes can go a long way in overcoming the challenges facing the economy. The urgent need, according to it, is to boost investments in agriculture, infrastructure and industrial sectors.
As regards agriculture, CII has recommended encouraging private sector participation through various tax measures, including 150 per cent tax exemption on expense incurred on new technology and inputs; best crop raising practices; mobile vans exclusively devoted for conducting awareness programs; soil testing; residue analysis; diagnostics and so on.
To boost investments in infrastructure, CII seeks to do away with the levy of MAT on infrastructure companies as it has diluted the incentives provided under section 80-IA to the sector. The apex industry organisation has also favoured widening the definition of infrastructure u/s 80-IA to include rural based initiatives like water harvesting, IT products, solar panels etc.
Further, the tax holiday u/s 80IA (4) is sought to be extended to the third party developers of infrastructure projects. Currently, the benefit is restricted to the developer or the company that operates and maintains an infrastructure facility.
Towards addressing the issue of funds for infrastructure sector, CII has pitched for reintroduction of Section 10 (23G) of the Income Tax Act, which provided tax exemption of interest and Long Term Capital Gains in the hands of infrastructure capital companies. The provision was removed in the announcement of the Budget 2007-08 on the ground that tax rates and interest rates on borrowing had come down significantly.
However, given the fact that interest rates are on a persistent upward march and the fund requirements of the infrastructure sector are large (to the extent of US$1 trillion over the next five years), reinsertion of 10(23G) could be greatly helpful, stated the CII press release.
Changes in some of the provisions of direct tax are also suggested to be applied to induce investment in the industrial sector. Among other initiatives in this direction, CII has suggested increasing the deprecation rates on plant & machinery from 15 per cent to 25 per cent and extending R&D incentives available u/s 35 (2AB) (that allows 150 per cent weighted deduction on expenses incurred on in-house scientific research to select sectors) to all sectors.
Since a huge amount is incurred on setting up research and development facilities, the benefit of tax deduction should be extended to expenditure on buildings used exclusively for R&D. Suggestion is also made to provide 150 per cent weighted deduction for contributions made by corporates to R&D Fund for SMEs as the R&D requirement of small and medium enterprises vary a great deal from that of large firms.
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