The government today rejected the demands for tax exemption on setting up power plants, state maritime boards and port trusts, saying it was inconsistent in a moderate tax regime.
"The representations were examined and were not found feasible considering the need to phase out exemption as these are inconsistent with a moderate tax regime," Minister of State for Finance S S Palanimanickam told the Lok Sabha in reply to a query related to proposals from various states asking for restoration of tax exemption for Port Trusts and State Maritime Boards.
To a different query regarding tax holidays for setting up power plants, he said the power sector, particularly the private sector, has significantly matured, benefitting from direct tax holidays for almost two decades and there was no need for any extension.
"There is no proposal under consideration of the government to provide further extension of tax holidays for setting up of power plants in terms of direct taxes," he said.
The minister added that tax incentives like exemptions and deductions are economically inefficient, inequitable, lead to revenue loss, breed rent-seeking behaviour, increase compliance costs and enhance the administrative burden.
"The case for tax incentives is further weakened in the existing tax regime of moderate tax rates. Therefore, as a matter of principle, government has taken a considered policy decision not to support tax incentives and to allow minimal exemptions and deductions," he said.
However, in the power sector, as far as indirect taxes are concerned, all items of machinery and equipments required for initial setting up mega power projects are fully exempt from duties and customs.
All such goods domestically procured for initial setting up of mega power plants awarded on an international competitive bidding basis or tariff-based bidding are also fully exempt from payment of central excise duties.
"These exemptions are available without any specific time limits," Palanimanickam said.