The government plans to ease tax provisions applicable to the road and highways sector by allowing developers to pay taxes over the concession period of a project rather than making an upfront payment.
In case of road projects being developed under HAM or Hybrid Annuity Model, investors may be given the option of paying taxes on income over the concession period of 25-30 years rather than paying taxes upfront after completing construction, two people aware of the development said on condition of anonymity.
The changes, they said, maybe announced as part of budget proposals for 2022-23 to be presented by finance minister Nirmala Sitharaman on 1 February. A spokesperson for the finance ministry did not reply to an email seeking comment.
The people cited above said clarity on taxation for the road sector would provide larger liquidity to the developers and enhance their margins with the expectation that surplus funds would be deployed back into making investments in other infrastructure projects.
At present, in HAM projects, the concessionaire gets compensated by fixed annuity payments during the construction and O&M (operation and maintenance) phase. Forty percent of construction annuity is paid during construction, and 60% over the residual concession period.
The Goods and Services Tax Council recently clarified that construction annuities are liable to GST, whereas O&M annuities are exempt. But there is ambiguity on the tax treatment of HAM since the revenue is not earned from toll but by way of fixed annuities from the National Highway Authority of India (NHAI) for construction and O&M components.
It is expected that the construction annuity may be taxed upfront on the completion of construction by following the Percentage of Completion Method (POCM), although 60% is received over the concession period.
The tax clarity by the finance ministry will also allow HAM project developers to amortize their cost towards the development of such facility, as business expenditure, over the concession period (excluding construction period). This will allow developers to avoid upfront tax payments that could be paid in part as and when the annuity is received from the NHAI as per the terms of the concession agreement.
With the NHAI now preferring HAM over other models to bid out road projects, the tax clarity is expected to revive investor interest in infra projects as they could see higher returns on investments and margins.
Source from: https://www.livemint.com/news/india/govt-may-ease-tax-rules-for-road-developers-11640370513991.html