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Developers such as GMR, GVK, and IRB Infrastructure can look forward to more business from the highways segment next fiscal.
The Finance Minister has proposed to set a target of covering a length of 8,800 km under the NHDP next year. “The allocation of the Ministry has been enhanced by 14 per cent to Rs 25,360 crore in 2012-13,” the Finance Minister said.
Developers would also benefit from changes in rules that would prevent the cascading effect of dividend distribution tax (DDT). This had been one of the long standing demands of highways developers as well as infrastructure companies.
“This will ensure more transparent transfer of funds between subsidiaries of infrastructure companies,” said Mr Parvesh Minocha, Managing Director, Feedback Infrastructure.
“Allowing National Highways Authority of India (NHAI) to raise Rs 10,000 crore through tax-free bonds means the authority would be able to award higher number of projects in the coming year,” said National Highways Builders Federation (NHBF), the lobby body of highway developers.
Additionally, the developers welcomed the move to reduce withholding tax from 20 per cent to 5 per cent, and the move to allow Qualified Foreign Institutions to invest in corporate debt market.
“With increased participation, companies could raise public debt at competitive rates,” stated NHBF. But, developers were concerned on availability of foreign funds through external commercial borrowing (ECB).
WHY DDT IS IMPORTANT
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.
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