Higher allocation and refinance, plus tax rebate on infrastructure bonds, were the key benefits for infrastructure companies in the Budget.
Infrastructure companies have welcomed the increase in allocation, but are disappointed over increase in minimum alternate tax (MAT) from 15% to 18%. However, MAT may not be a significant issue, suggests a tax expert.
“From the infrastructure point of view, the Budget is a good one, except for the increase in MAT,” said Virendra Mhaiskar, chairman and managing director, IRB Infrastructure.
“Higher MAT will be a deterrent for (setting up) special purpose vehicles (SPVs). It goes against the benefits of providing a tax holiday to SPVs. I think that the impact would be around 2% to 3%,” said Parvez Umrigar, managing director, Gammon Infrastructure Projects Ltd.
The increase in MAT holds importance to infrastructure companies as most new road projects are started under a new SPV. SPVs are the worst affected by the increase in MAT. However, tax experts believe the increase in MAT will not severely affect the sector, as the tax-holiday period has also been increased and more finance opportunities have opened up.
“With the increase in the MAT rates, cash flows will be impacted. However, the tax-holiday period has also been increased from seven years to 10 years. With the earlier seven-year tax holiday, the loss of MAT benefit for three years became a tax cost, which will no longer be the case,” said Samir Kanabar, Partner - tax regulatory services, Ernst & Young.
“Though the cashflow is affected, they have also asked India Infrastructure Finance Company Limited (IIFCL) to refinance infrastructure loans. Projects will gain more momentum with this finance. I don’t see it as a huge impact because your surcharge has come down .The effective difference would be less than 2%” said Mr Kanabar.
IIFCL’s disbursements are expected to touch Rs9,000 crore by end-March 2010 and reach around Rs20,000 crore by March 2011. IIFCL refinanced bank lending worth Rs3,000 crore to infrastructure projects during the current year and is expected to more than double that amount in 2010-11.
Deduction of an additional amount of Rs20,000 would be allowed, over and above the existing limit of Rs1 lakh for tax savings, for investment in long-term infrastructure bonds as notified by the Central Government. On the whole, the Budget is positive for infrastructure companies. “The infrastructure bonds would help in garnering money. The Rs20,000 tax benefit is welcome. It is a dedicated, separate instrument; nothing else is going to buy out the attention and this is significant,” said Mr Umrigar.
Road developers are expecting further changes in investing policies for infrastructure bonds. “Of course, our wish-list at some stage in the future would be to get the same benefit on long-term infrastructure bonds, which is now restricted to banks and NBFCs. The dedicated infrastructure developer should benefit. That is something that I would like to see gradually,” added Mr Umrigar.
On the BSE, GMR Infrastructure closed at Rs54.80, up 2.43% from the previous close of Rs53.50. Gammon Infrastructure closed at Rs24.90, up1.43%. IVRCL closed at Rs321.85, up1.12%. Nagarjuna Construction Company closed at Rs153.65, up1.82%.