The Legal & Tax Summit reviews the latest developments in the laws and taxes governing the power and infrastructure sectors in India and brings them up for examination and discussion by government, regulators, industry and experts.
While it is essential to encourage industrial development through foreign and domestic participation, it is also important to ensure that these developments (and investments) are in conjunction with the interests of the consumer, industry, environment and other stakeholders. With this premise, the Summit will examine some of the key laws and regulations that impact development of the power and allied sectors in India. These include:
Day 1:
Union Budget 2010: The Budget has proposed 16 direct tax amendments with retrospective effect (some of them going way back as 1976), in the finance bill. These amendments overrule court rulings, thus forcing companies to pay tax with a retrospective effect. Further, this seems to have become a trend, with almost each Budget proposing a certain number of these retrospective amendments. This tends to be unsettling as it impacts the faith of companies in the present taxation system and this is going to increase uncertainity.
In the power and energy sector, the doubling of allocation for power sector from Rs. 2230 crore to Rs. 5130 crore is a much anticipated and expected move. However, the proposed cess of Rs. 50/tonne on coal (which will be fed into the ‘National Clean Energy Fund’ to fund research projects in clean energy technologies) is expected to hit income and thus flare up energy prices in the country.
The increase in customs duty on crude oil to 5%, on diesel and petrol to 7.5%, and on other petroleum products to 10% is expected to severly impact fuel prices in India, as is the hike in the Minimum Alternate Tax (MAT) from 15% to 18%. The increase in budgetary allocation for the national solar mission and a reduction in customs duty for wind, solar and geo thermal sectors is a move that is expected to accelerate development of renewable energy in the country.
Direct Tax Code (DTC) and Goods & Service Tax (GST): The 2 tax reforms to be implemented in April 2011 are expected to usher in a new regime of taxation in the country. DTC is expected to simplify the system of taxation and boost investment based incentives for economic development. However, the proposal of imposing MAT on gross assets as opposed to real income is an area of concern for industry as this move can impact heavy asset businesses who will find this system more taxing. Further, implementation of the DTC will impact interpretation and enforcement of previous rulings, as they are based on the income tax act of 1961.
The GST is expected to be one of the biggest tax reforms in India. Through the GST, the Government proposes to create a uniform system by abolishing the multiple layers of indirect taxes that exist currently in the country. The GST proposes to integrate all States through a new unified tax regime which in turn will build a stronger economy. It is important to discuss how this switchover can impact industries and what are the effective steps that they should take to enable smooth transition from the present regime of indirect taxes to GST.
Fiscal and regulatory issues in the Gas sector: The new findings of gas in the KG basin and its carbon free nature have generated a new interest in the sector. Clarity on fiscal and tax issues will accelerate investments in the sector. Discussions on the implementation of city gas distribution, tariff fixation for gas - both upstream and downstream, a fiscal analysis of New Exploration Licensing Policy (NELP) and the issue of market determined pricing vs regulated pricing will facilitate development of the sector.
Taxation regime on Renewable Energy: In order to increase its share in the present energy portfolio, the Governmnet has announced several incentives for the promotion of renewable energy. A new tax regime on Certified Emission Reduction Certificates and Renewable Energy Certificates is being prepared for launch in India. Elements of this regime will be analysed to understand what options are available to those investing in renewable energy. The possibility of giving tax exemption to venture capital funds on income from undertakings in renewable energy sector will also be discussed. Experts will also analyse the recently launched Generation Based Incentive Scheme for Wind projects vis a vis the accelerated depreciation model that has been followed so far.
Challenges in the development of debt markets and the issues in financing for the power, renewable, oil and gas sectors are some of the other issues being discussed on Day 1 of the Summit at the Summit.
Day 2:
Issues of liability and insurance: India is gearing up for the establishment of a successful nuclear programme. The nuclear industry requires huge investments, given its gigantic scale of operation. In order to facilitate these investments from foreign and domestic players, there is a pressing need to bring clarity on the issues of liability and insurance surrounding the sector.
The legal framework for liability for a nuclear operator or a major industrial project, stems from the law of torts in India. The Supreme Court Judgment in the case of ‘MC Mehta v. Union of India’ upheld that the liability of a sponsor is absolute in the case of a disaster and the operator is liable to compensate all affected parties. This regulation does not take into account the long term cost of compensation for damages and the concurrent impact on the environment, making it difficult for investors to invest in the sector. The implementation of a suitable civil nuclear liability bill can protect the interests of the investors and limit their liability in the case of an aftermath like the Bhopal disaster.
The absence of any insurance or support from the government increases the risk and makes it more challenging to invest in the sector. How this framework affects the risk appetite of the insurance players in the country is also something that needs to be examined. Clarity on these issues can promote investments in the sector.
Issues in Project development and implementation: What starts off with problems in delays with land acquisition at the onset of a project often develops into subsequent concerns of Resettlement and Rehabilitation (R & R) and environmental clearances. This delay in starting a project increases pressure on the resources of a company and slows down industrial progress. The lack of clarity surrounding land acquisition and R & R only make matters more confusing. The land acquisition act of 1894 does state that acquisition of land for projects that facilitate public good is justified; however, the definition of ‘public good’ in itself is not clear.
These concerns have been highlighted in the development of the Special Economic Zones (SEZs) in Nandigram, Singur and other areas, where work on some major projects have been halted due to delay in either getting requisite permissions for land, or in getting environmental clearances. An analysis of the laws related to land, R & R and the environment will facilitate companies to make informed decisions when initiating a project.
The Summit also seeks to examine the viewpoints of people who are directly or indirectly affected by the setting up of industrial units, such as those whose land is acquired or those who have been affected an industrial disaster like Bhopal. The key to sustainable economic growth may well be people-centric industrialization keeping the interests of the local population in mind.
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