Pre-budget expectations: Union Budget 2019

Energy, Resources & Industrials

With the existing Government taking charge for a second term, there is a positive atmosphere in the business environment, especially in the capital-intensive Energy, Resources, and Industrials (ER&I) industry. Further, considering the “Make in India” initiative, the upcoming Union Budget 2019 would be a great opportunity for laying a foundation for long-term growth, attracting foreign investment and creating job opportunities.

Direct Tax

  • The energy sector is investment-heavy and typically, entities are opened for separate projects in certain sectors (such as power).  Introducing taxation at group level for cases, where a separate company set-up is mandated by government contracts, will boost the energy sector.
  • Including the power industry, especially renewable energy, to avail investment linked incentives (earlier power industry was eligible for profit linked incentive)
  • To support power companies’ set-up, a clarification is required for qualification of power sector for additional investment allowance of 15 percent on investment in notified backward areas. Further, an extension should be provided for investments beyond March 2020.
  • Having a common corporate tax rate of 25 percent across all taxpayers (currently only a limited set of corporates can avail benefit of 25 percent). 

Transfer Pricing

  • The energy sector in particular requires intensive investments and has low RoI ratio in the initial years, with most new projects being financially supported by the parent companies. The limitation imposed by section 94B on interest payments to 30 percent EBIDTA is an uncalled burden on the taxpayers operating in Energy sector, where getting financial support from their group is crucial in their inception years. It would be a much needed relief to increase the interest limitation to 50% of EBIDTA for entities operating within Energy sector.
  • India introduced Safe Harbour for the first time in 2013, however till date there are no specific Safe Harbour rates available specific to ER&I industry. Hence, inclusion of rates specific to this industry would be welcomed by taxpayers.
  • In case Presumptive Taxation shall be applicable to the said sector, some clarity can be expected from the Government on the TP implications.

Indirect Tax

The Union Budget cannot make any announcements related to the GST law as this is the prerogative of the GST Council; however following would be appreciated by the ER&I industry:

  • Provide a roadmap for the stabilisation of the GST law – highlight issues which will be addressed in the short term and provide a longer term plan as well.
  • Provide some insight on when and how real estate and petro products especially CNG and PNG will be brought within GST.
  • Share insights for administrative changes that are being considered for a better administration of the GST law.
  • Share insights on how GSTN related issues will be addressed quickly.
  • A portion of coal cess should be allocated as VGF for combining new wind/solar and existing gas based power plants to utilize LNG as this would improve usage of gas and also promote cleaner fuels replacing coal
  • Budget allocation to be made for construction of north east pipeline which would connect the north east states to main gas grid and improve utilisation of gas in this eco-sensitive region.
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