In India, though indirect taxes are driving logistics, direct taxes would act as a catalyst from value engineering perspective. The recent Budgetary amendments and proposed Direct Tax Code Bill has to a larger extent addressed issues pertaining to logistics including supply chain and infrastructure which goes hand in hand. The 100 % deduction allowed in respect of capital expenditure (except expenditure on acquisition of land, goodwill or financial instrument) for the business of setting up and operating cold chain facilities for specified products, and setting up and operating warehousing facilities for storage of agricultural produce, would certainly attract new investments. The enhancement of limit for disallowance of expenditure made in the case of transporters i.e. to raise the limit from Rs 20,000 to Rs 35,000 effective October 1, 2009 and NIL TDS for road transport, would certainly address the stringent practical difficulties, which is step towards moving of this Industry from unorganised to organised structure. Removal of FBT from overall perspective and especially for service industry (more so to logistics) is a further step for streamlining direct tax structure.  Deductions under section 80-IA meant for infrastructure industry, which has been extended to railways as well would certainly give boost to overall logistics industry. To sum up, though not individually, but the combined effect of all the aforesaid measures would to some extent push this Industry. Nevertheless, if this is coupled with similar initiatives on indirect taxes and foreign trade policy, it would certainly drive the logistics industry in India. How do you find the present taxation in India and what all changes you think is necessary for the growth of logistics sector?
The present direct taxation system in India is well in order. However the following changes, specially in terms of procedures, would boost the sector in terms of efficiency and effectiveness: TDS under 194C is deducted on direct income and reimbursement as well. At times the TDS amount goes far beyond the gross margins on transaction, which is an undue hardship. Though there have been various judgements against it, a line of confirmation from Income Tax Department would resolve the long pending injustice. The rate of TDS under section 194C for logistic industry should be reduced from 2% to NIL in view of low margins, which would be in line with recent Budgetary amendment in case of transport business, wherein TDS would be deducted at the rate of NIL if the transporter provides PAN to the deductors (w.e.f. 1st October, 2009). 1. The proposed Direct Tax Code Bill levies MAT @ 2% of the value of gross assets whereas 0.25% in case of banking industry. Here we need to understand the concept of manufacturing and service industry, more so those service sectors which are capital intensive like logistics. The MAT rate should therefore be restored to 0.25%. Also it would contradict the initiative of 100% deduction on Capex. More over MAT should be allowed to be carried forward for claiming tax credit in subsequent years. 2. Tax rate for companies (both domestic and foreign) has been proposed under Direct Tax Code Bill at a uniform rate of 25%. However in case of foreign companies, additional "Branch Profits Tax" (BPT) of 15% should be done away with because the very purpose of brining them at par i.e. at 25% would be defeated. 3. In case of remittances under section 195 to non resident indians, the requirement of Certificate from a chartered accountant should be dispensed in cases wherein the remittances are tax exempt irrespective of DTA's like ocean freight, reimbursements, etc. 4. The proposed Direct Tax Code Bill concludes every business unit as a separate source and therefore, income will be computed separately for each business. This needs a clarification as logistic industry constitute many businesses in terms of road freight, sea freight, rail freight, air freight, warehousing, supply chain, etc. The end users of logistics often complain about hidden taxes. Which are they? Have there been any steps to better the situation?
The hidden taxes are of grave concern more from indirect tax perspective. The direct taxes would generally not impact the ultimate end user. However steps must be initiated to overcome the issue of unorganised sector and creating a larger space for evolving the logistics industry as an organised sector. (Mr Chonkar is director, finance and CFO, Arshiya International, Mumbai) |
