“The government has decided to tax all central and state subsidies and grants
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MUMBAI: One of the reasons for the heavy selling in the markets on Wednesday, according to stock market experts, was the surprise element of tax on subsidies in the Finance Bill, which was passed recently. According to them subsidies, tax concessions, grants, incentives and duty drawbacks that add to business income of companies will now be taxed.
“The government has decided to tax all central and state subsidies and grants. This was not in the Finance Bill tabled earlier,” pointed out Deven Choksey, managing director, K.R.Choksey Securities.
For instance, Mr Choksey said that a sales tax subsidy to encourage new capital investment is a capital receipt ands not liable to tax where as revenue subsidies are taxed.
“Now the latest amendments bring both capital and revenue subsidies under the tax net, which is counterintuitive. There will be a direct 35 per cent tax on subsidies, which means if a company is receiving Rs 1,000 crores of subsidies in the form of concessions or grants, it will have to pay a subsidy tax of Rs 350 crore. This will make a lot of projects financially unviable,” he added.
Experts added that a lot of incentives were provided during the past several years to encourage companies to set up businesses in backward areas to achieve balanced regional development. All such incentives were treated as capital receipt and were not liable to tax.
The latest proposal, according to them, will act as a disincentive for companies to put-off their projects. “This is not only stupid but will also lead to a lot of complications and litigations,” he said. “The subsidies received by the companies will now be treated as income and taxed at the applicable rate. This is going to impact capital intensive industries, fertiliser companies and oil marketing companies the most,” said Ambareesh Baliga, a veteran market expert.
( Source : dc )
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