The Road Transport and Highways Ministry has started discussing the implications of the proposed new Direct Taxes Code on the road construction industry, with various stakeholders including State governments, Finance Ministry and highway developers. The Ministry has mandated consulting firm PricewaterhouseCoopers to conduct a study on the impact of the proposed code on the highway development sector. It has also sought comments from the developers on how the various provisions of the DTC will impact the business of developing, operating and maintaining highway projects.

MAT ON ASSETS

The Road Transport and Highways Ministry has set an ambitious target of building 20 km of highways per day. To achieve this, the Union Minister Mr Kamal Nath has been pushing through a whole range of policy issues that will make the highway projects more attractive for the investors. In this context, the implications of the proposed DTC become important. The new DTC will have widespread implications on the business of highway development since it proposes two per cent minimum alternative tax (MAT) on gross assets.

Moreover, the DTC also proposes to do away with MAT credit. This has become a cause of concern for the highway developers since they need huge assets. Currently, the basis of levy of MAT is on book profits and MAT credit is also available for companies. In the proposed regime, MAT on assets will be a final tax and no credit will be available in subsequent years.

INFRASTRUCTURE PROJECTS

The concern for the highway developers also stems from the fact that in the initial years of project construction and operation, there may not be enough profits to bear the tax outgo. It is also not clear whether the proposed code will allow continuation of the existing ten-year tax holiday (under Section 80 IA) for infrastructure projects, including highway projects in the current form.

Also, a view has to be taken on various issues, including whether or not MAT should be imposed on infrastructure projects to start with; even if MAT has to be imposed — whether it should be imposed on lower levels. “We are currently analysing the implication of the DTC. Final views of the Ministry have not been taken as yet. The Road Ministry will send its suggestions to the Finance Ministry in due course,” said official sources in the know. The Government is looking to introduce a Bill on the DTC in the Winter Session of Parliament. This Bill will replace the existing Income Tax Law, enacted in 1961.

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