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Changes in rules that would prevent the cascading effect of dividend distribution tax (DDT) is one of the key demands of highway developers from the Finance Minister, Mr Pranab Mukherjee, in the Budget for this year.
This has been one of the long standing demands of highways developers as well as infrastructure companies.
The issue has also been flagged by various high level committees including the Deepak Parekh Committee on infrastructure financing.
step-down subsidiaries
Companies in infrastructure development usually have a multi-tier corporate structure with a holding company which could be a listed entity.
The holding company invests in various step-down subsidiaries which are involved in the actual execution of the infrastructure project.
These step-down subsidiaries pay DDT on distribution of dividends to its holding company, which in turn is required to pay DDT while distributing dividends to its shareholders. This reduces the return of the equity investors in the holding company, making investment in infrastructure sector less attractive.
For example, GMR Holdings has a 71.42 per cent stake in GMR Infrastructure Ltd, which in turn has a wholly-owned subsidiary for its highway projects called GMR Highways Holdings.
GMR Highways Holdings further has investments in nine SPVs for different highway projects with equity stakes ranging from 51 per cent to 100 per cent (as on November last year).
“In fact, step-down subsidiaries tend to avoid paying dividends to the parent companies in this business to avoid DDT at all levels,” explained Mr G.S. Johar, Chairman of C&C Constructions.
National Highways Builders Federation (NHBF), the lobby body of highway developers and builders, has asked for a resolution for the issue in the forthcoming Budget. The federation has some 70 members including GMR, GVK, L&T, Gammon, Leighton and Isolux.
“We have taken this up with the Finance Ministry in our meeting,” said Mr M. Murali, Director General, NHBF.
NO SERVICE TAX ON TOLL
Other projects of the highway developers include a clarification that toll charges are out of the service tax ambit. Tolls are collected from the users of the highways, and the rules for toll collection prevent the highway developers from charging anything beyond the specified toll rates, Mr Murali said.
EXCISE DUTY EXEMPTION
Another demand is with regards to a clause that provides excise duty exemption on concrete mix, provided it manufactured at the site of construction for use in construction work. In this context, the NHBF has said that the exemption should be extended even if the sites are away because the stretch of road lengths that are awarded are getting longer.
“Due to numerous constraints concrete mix is required to be manufactured away from site. Circular may be issued to field formation stating site will not be given restrictive meaning and shall include premises available away from site, provided concrete mix so manufactured is exclusively used in the construction work,” said NHBF.
mamuni@thehindu.co.in
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