Power cos eye tax sops, pro-investment moves

The sun sets behind electric pylons in Allahabad in this February 2006 file...

India's power companies are hoping the federal budget to encourage much-needed investments in the sector and have sought an extension of an income tax holiday beyond 2010, industry officials and analysts said.

Power project developers have been granted a 10-year exemption from income tax, if they begin to generate power before March 31, 2010.

"There is a very compelling business case as well as economic case to extend the tax holiday," said Jai Mavani, head of infrastructure at KPMG, adding that the move could help augment power infrastructure in the country.

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Asia's third-largest economy is crippled by power shortages -- often 12 to 16 per cent of the peak demand --, and the Planning Commission estimates that the country needs over Rs 2 trillion to meet the targeted power addition of 78,577 MW by 2012.

The budget, due on Monday, is likely to extend income tax sops to power project developers and make provisions to meet target set by power ministry to add 14,507 MW of capacity in 2009-10, analysts said.

The Council of Power Utilitites (CPU) has sought income tax exemption up to March 2013, abolition of minimum alternative tax for power companies and tax exemptions for the carbon emission reductions.

Minimum alternate tax (MAT), that refers to fixed percentage of tax on profit, which the CPU says is negating the benefit of infrastructure sops.

While firms are hopeful that their demand for exemption of income tax may be granted, removal of minimum alternate tax seems unlikely, an official who declined to be named said.

The Independent Power Producers Association of India (IPPAI), another industry body, has demanded merger and demerger activities be brought under income-tax exemptions, and also sought tax-sops be extended to captive power plants.

However, as electricity from captive power plants is used by the producers themselves, income tax exemptions for them are unlikely, a Mumbai-based analyst said.

Power sector policies need long-term view than a view of just single financial year, while their implementation can be accelerated and monitored on a regular basis, for which the budget can provide a good benchmark, an analyst said.

"In terms of direction it (the budget) may contain some good-to-have announcements, but in terms of the actual details on what it will amend, perhaps we must set expectations at realistic level," KPMG's Mavani said.

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