Market Insights

Chemical Industry to Benefit from Investment Linked Tax Incentives

Posted on 10 February, 2010 | Tags:

Government of India has introduced policies in the Union Budget 2009-10 with the aim to sustain a growth rate of at least 9 percent per annum. This would further strengthen the mechanisms for inclusive growth by creating ample job opportunities for the youth. Focused budget allocation for education, infrastructure, introduction of rural employment programs and personal income-tax relief are steps in this direction.

Though budget has been framed to offer maximum benefits to the common man, but corporate India does not seem to rejoice. While no changes have been made in the Corporate Taxes, Fringe Benefit Tax (FBT) has been abolished. Abolition of FBT is a positive signal as the cost of implementation was very high. The announcement of introduction of Goods & Service Tax (GST) by 1st April 2010 by the Finance Minister is reassuring. It was desirable that Central Sales Tax (CST) be reduced, as this would have given a concrete direction to the said proposal.

Extension of R&D deductions for the manufacturing businesses is a positive signal. This would provide major impetus for research-oriented industries for promoting product innovations. Some of the industries that would be benefited the most are Pharmaceuticals, Chemicals, Automobiles and Auto Components. Introduction of Investment linked tax incentives in setting up and operating 'cold chain', warehousing facilities for storing agricultural produce and pipeline network for distribution of natural gas / crude / petroleum oil will encourage investment in these capital intensive businesses.

Overall, the allocated expenditure on infrastructure development to build Highways & Roadways, Urban Infrastructure and proposed expenditure for Commonwealth Games, 2010 brings positive news for the infrastructure, construction and related businesses. "At the Corporate level, abolition of FBT (Fringe Benefit Tax) & substantial increase in infrastructure investment are welcome moves. Chemical manufacturers and its end-use industries will gain from the introduction of investment-linked tax incentives," says Prasad Chandran Chairman, BASF Companies in India & Head South Asia

Prasad Chandran
Chairman, BASF Companies in India & Head South Asia