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Analysing budget’s impact on the industry

The construction sector has again come into the limelight with the FM announcing increased infrastructure spending targeted to 9% of GDP by 2014.

It was widely expected that government would continue pumping money in the economy to boost demand. Budget 2009 has kept this promise with the increased allocations to most flagship schemes like Indira Aawaas Yojana (increase of 63%) and JNNURM (increase of 87%). Spending on highways and railways too has been increased by 23% and 46%, respectively.

This budget has announced a ‘takeout financing’ scheme for facilitating incremental lending by IIFCL.

Empowering IIFCL to refinance up to 60% of commercial bank loans for PPP projects in critical sectors over the next 15 to 18 months would enhance funding of infrastructure projects. From direct tax viewpoint not much stands changed as corporate tax rate and dividend distribution tax rate remain the same.

However, the hike in Minimum Alternate Tax (MAT) rate from 10% to 15% will increase the burden on companies undertaking BOT projects and claiming tax holiday.

The retrospective amendment to Section 80 IB to clarify that tax holiday will not be available to undertakings which executes the housing project as a works contract will impact construction contractors, which had claimed tax holiday, even in case of pending tax assessments.

On indirect tax front, removal of central excise duty on prefabricated goods at the construction site for use in construction at such site, will help in reducing the project.

Although Budget 2009 is seen to be treading on a relatively cautious though solid path for social upliftment, infrastructure development and tax reforms from construction sector perspective, it has given a lot to cheer about.

The analyst is sr manager – tax & regulatory services, Pricewater-houseCoopers

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