Engineering: The industry's wish-list

Mr. Y. M. Deosthalee - Whole time Director and CFO, L&T

Dividends received by an Indian company from a foreign company that is either its subsidiary or a joint venture, though received in foreign exchange, are taxable in India. In order to encourage investments by Indian companies abroad, such dividends in foreign exchange should be made tax-free.

Exemption on long-term capital gains and concessional rate on short-term capital gains should also be available on off-market transactions as well - strategic acquisitions, mergers, de-mergers, business sale etc.

Fringe Benefit Tax (FBT) needs to be rationalised. The specified expenses for levy of FBT should be confined to only those expenses incurred in relation to employees. Expenses not resulting in any benefit to employees should be excluded.

Dividend Distribution Tax (DDT) should be abolished since it results in double taxation of income. In the event that it continues, a system of exemption of DDT on dividend received from step-subsidiaries should be available.

Infrastructure is identified as a major thrust area by the government. Exemption earlier available of interest and long-term capital gains of infrastructure capital companies derived from lending / investments made in infrastructure projects, housing projects and SEZs, be reinstated. The rationale for the earlier withdrawal of exemption does not hold good any longer with the increase in interest rates.

Benefit of tax holiday to entity developing, maintaining or operating infrastructure facility, to be extended to the third party to whom the job of developing the facility is sub-contracted.

Private sector licensed manufacturers of defence equipment be eligible for exemption from excise duty on job work inputs to ensure a level playing field.

Provisions requiring submission of declaration forms for every quarter and within 3 months of end of every quarter allow less time for collection of the forms. It is suggested that at least a 2- year period be allowed for collection and submission of forms. Printing of declaration forms on dealers' stationary should be permitted as benefit of computerisation can be availed.

Specified raw materials for manufacture of parts of cathode ray tubes and specified capital goods for manufacture of mobile handsets, plasma display panels exempted

10% rebate on railway freight rates for heavy machinery

2% education cess on all taxes

NHDP-III to be launched in FY06 to target selected high density highways not forming part of the GQ or the N-S E-W corridor; Rs 14 bn provided in FY06 to four-lane 4,000 kms.

Excise duty on ACs has been reduced from 24% to 16%.

Budget support for National Highway Development Programme (NHDP) enhanced from Rs 93.2 bn to Rs 99.5 bn in 2006-07.

Special accelerated road development programme for the North Eastern region proposed at an estimated cost of Rs 46.2 bn approved with allocation of Rs 5.5 bn in 2006-07

1,000 kms of access-controlled Expressways to be developed on the Design, Build, Finance and Operate (DBFO) model.

Capital expenditure on defense proposed at Rs 375 bn.

Peak rate of customs duty on non-agricultural products has been reduced from 15% to 12.5% with a few exceptions.

Exemption to specified goods for making capital goods for setting up a unit with an investment of Rs 50 m or more withdrawn.

Resin binders used for manufacture of rotor blades for wind operated electricity generators exempted from excise duty.

Under NELP VI, 55 blocks and area of 355,000 sq kms offered. Investment of Rs 220 bn expected in the refinery sector in the next few years.

Five ultra mega power projects of 4,000 MW each to be awarded before December 31, 2006

Power play: Since power utilities are one of the biggest consumers (generation, transmission and distribution) for engineering companies, reforms introduced in the power sector like privatisation of SEBs will help in strengthening the order book size. Huge addition in power generation capacity, in order to meet the demand supply gap will be a big positive for the sector.

Infrastructure development: The government is focusing on development of infrastructure like housing, airports, roads and ports. This will be big positive for engineering and construction companies

Industrial 'act': Industrial divisions of engineering companies are likely to benefit from the increased focus on automation and capacity addition plans drawn by the India Inc.

Slow pace of reforms: Since the government is planning to review some of the provisions of the Electricity Act, reform implementation could slow down. To that extent, the order booking for engineering companies could grow at a slower rate.

Captive competition: Duty free import of T&D equipments by captive power generation units, if allowed by government, can have some impact on margins of the T&D majors because of competition.