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INDIRECT TAXES
India Inc takes tax hikes in its stride
Sat, 17 Mar 2012 00:15:41 +0530
Business Standard Economy Policy News

Bold, rational and courageous. Can’t be applied across the board but certainly in segments like agriculture, infrastructure credit, education and skill development. No cause to sulk!”

A tweet from Anand Mahindra, M&M’s Vice Chairman and Managing Director hinted on India Inc’s mixed mood. Only a few, such as Mahindra, admired the rooted-in-reality annual plan of the FM. Others termed the hike in excise and service tax --- though on expected lines – inflationary in nature.

“Key indirect taxes like services, excise have gone up. I am expecting around 3-5 percent price hikes on an average cutting across sectors,” said Kewal Handa, managing director of drug major Pfizer in India. “So far pharma industry has tried to hold on to prices. But we will have to go back to the drawing board to evaluate this round of hikes.”
A few companies responded with price hikes. Tata Motors decided to increase the prices of its commercial vehicles and passenger vehicles with immediate effect.

Rajan Mittal, Vice-Chairman and managing director of Bharti Enterprises, said the excise and service tax hike to 12 per cent will get passed on to consumers. “We were expecting the growth momentum to continue. The tone of the Budget did not have anything to convince we are still on that trajectory,” he said.

Limited option Most honchos acknowledge the FM had limited options at a time when fiscal deficit is getting out of hand. Options of bold reforms also carry a political price. Sanjiv Goenka, chairman, RP-Sanjiv Goenka Group, said “One should understand the constraints of coalition politics. It is difficult to do rapid reforms taking all stakeholders into account. So, I believe it is better to introduce realistic policies that can be done, rather than announcements which cannot be fulfilled.”

A mention of retail FDI or a timeline given for key financial sector bills such as pension, insurance reforms and banking amendments gave some hope. The budget also handed out sops for aviation and power.

“The abolition of customs duty on coal coupled with reduction in CVD on coal imports will reduce electricity cost for consumers and is a strong positive,” said Gautam Adani, chairman, Adani Group. “The specific provision to allow ECB for refinancing rupee debt of power project will also release considerable resources from the banking system.”

Retrograde step
The proposal to change the provisions of the IT Act, and tax all offshore share transfers retrospectively if underlying assets are in India, will open a Pandora’s Box, felt industry, and quadruple the sovereign risk profile of the country.

Several high profile deals involving GE and Genpact, Aditya Birla and AT&T, Sab Miller-Foster, Cairn-Vedanta may now be impacted.

“This is most retrograde. Our policymakers should realize we do not live in isolation. We need FDI, foreign technology and capital. By all means, impose capital gains or withholding tax but on a prospective basis. Why do we need to go all the way back to 1962. This one step is most negative in the Budget,” said Deepak Parekh, Chairman, HDFC.
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