Axe hangs on tax exemptions
Crisil to advise NTPC on gas-based projects
CEOs look for budget cure
FIs want equity tied up before power loans

New Delhi, Jan. 6: 
The government plans to slash tax deductions allowed for spending on Mediclaim and higher education to 10 per cent.

At the same time, it wants to totally do away with tax incentives given for investment in certain other financial assets such National Savings Certificates, public provident fund (PPF), notified government securities, interest earned from bank deposits and LIC’s annuity schemes.

Currently, an individual taxpayer can save on tax to the extent of 20 per cent of whatever he spends on medical insurance and higher education under sections 80 D, 80DD, 80DDB and 80 E.

The plan cleared by the CBDT also calls for imposing a ceiling equal to 10 per cent of the maximum investment permissible under the respective provisions.

CBDT also favours giving these tax concessions in the form of tax credit rather than as deductions for savings or investments. This implies that tax-payers can claim these deductions only as a percentage of their income tax and not as lump sum deductions.

The direct tax board also wants to totally end all tax incentives under section 80 CCC, 88, 80L and 10(15) — which allow tax savings if investments are made in long — term deferred annuity schemes, superannuation funds, 15-year time deposits in post office, national savings schemes, specified government security and on earnings from bank deposit subject to a ceiling of Rs 12,000.

CBDT officials said that the IT Act is riddled with tax concessions which take the form of full or partial exemptions, deductions and tax holidays. They argue administration of so many different tax-saving schemes and their computation makes tax calculations cumbersome and gives ample scope for various kinds of malpractices as well as litigation.

While some of these schemes encourage savings, they do not tax disavings. That is to say there is no netting of savings and disavings or spending of money released at the end of these schemes’ term, they said. Besides deductions allowed for saving in select government securities, are legally indefensible.

“It is best if these are done away with or their effect reduced. Tax rates have been reduced and can be further streamlined. But exemptions should be done away with,” officials argued.

A working group headed by Planning Commission principal advisor Arvind Virmani, formerly an additional secretary in the finance ministry, which is drafting a report on central taxes is also believed to have recommended this.

The government believes this will not affect the savings rate much. Experts on the Virmani group instead feel the introduction of innovative long-term savings schemes such as pension funds, new combined insurance policies being offered by recently launched insurers would lead to a boom in savings.


Calcutta, Jan. 6: 
Central power utility National Thermal Power Corporation (NTPC) has appointed rating agency Crisil as advisor for its five gas-based power projects.

The company has also floated an international bid for supply of five million tonnes of liquefied natural gas (LNG) for these projects, whose total capacity will be in the region of 4,580 MW.

NTPC sources said that the power utility is also on the lookout for a technical consultant to the project. “We are receiving expressions of interest from all over the world. The entire bidding process will be completed within a year’s time. Crisil has been appointed to evaluate the bids,” senior NTPC officials said.

The gas based power projects—Anta-II, Auriya-II, Kawas-II and Gandhar–II —have been hanging fire for quite some time now. The decision to invite bids for supply of LNG follows the central power utility’s decision to drop the move for a joint venture with Petronet LNG.


New Delhi, Jan. 6: 
The year-end snap poll of captains of industry conducted by the Confederation of Indian Industry (CII) reveals that while the year 2001 has been a harsh one, they have managed to keep their ships afloat, waiting for the budget to turn the tide.

Among the 63 CEOs polled, 40 per cent of those who had reported a negative growth in sales revealed impressive bottomlines. Most of them were able to anticipate the economic slowdown and hence emphasised on cutting costs.

A majority of these CEOs expects that demand is likely to pick up in the first six months of 2002. However, one-third of the respondents feel that it will take another year before any revival in demand can be witnessed. Data also revealed that the overall expectations of easing pressure on bottomlines lags that of sales by around six months.

One-fifth of the companies polled had engaged in some kind of restructuring activity, including mergers, take-overs, demergers or hived off a business unit. Even as a small group of respondents said they were open to diversification provided a suitable opportunity is identified, most of the respondents said they would want to go in for further restructuring in the year 2002. But downsizing was the option most of them resorted to, even though investments in technology have not been affected.

But a majority of 59 per cent observed that the forthcoming Union budget could stimulate economic activity by undertaking a combination of measures aimed at encouraging investment and reviving demand.

In fact, 40 per cent of those polled feel that cutting down on the government budget will have a huge indirect impact on the economy while 26 per cent feel that it will be only negative.


Mumbai, Jan. 6: 
Financial institutions (FIs), using the recent suspension of funds to languishing power projects, intend to make it mandatory for promoters to tie up the equity component before they come forward for loans.

The lenders want to apply the same yardstick to all power projects that seek financial assistance from them. If the promoters fail to tie up necessary funds within a given period, the institutions will not sanction projects and will ask promoters to make a fresh application.

“Often, it is has been observed that there is little progress on a project even though it hangs fire for years. In cases where promoters do not get funds because of various reasons, we will not only stop disbursements, but sanctions as well,” a senior FI official said.

Emphasis will be also placed on getting promoters to work out escrow arrangements.

The official, however, did not comment on whether institutions have given promoters a deadline to mobilise the equity capital. The move comes at a time when FIs have committed huge funds to power companies after the sector was opened up in the early 90s.

The institutions have lent over Rs 40,000 crore to more than 50 independent power projects.

However, a significant number projects are yet to the see the light of the day due to a variety of reasons, including the failure of state governments to provide escrow cover.

At present, 27 private power projects with a capacity of 5,500 MW have been commissioned; another 19, which will generate 5850 MW, are in the works. The FIs have reportedly cancelled assistance to five projects that have been slow to get off the ground.

This takes to 15, the number of projects to which loans have been choked. FI sources say there is a chance that a few more faltering projects will be denied fresh funds.

Even as many projects show little improvement and foreign investors walk out of their investment commitments, the government has targeted the generation of 1,00,000 MW of additional capacity by the end of the Eleventh Plan. According to estimates, the funds requirement for that period is expected to be about $ 200 billion.

However, many in the industry feel the lofty targets are unlikely to be attained due to several irritants, which include the poor health of state electricity boards.


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