Open to bringing tweaks to budget and take steps beyond it, says FM Nirmala Sitharaman

Experts tell the Finance Minister that a Budget proposal could affect the demand for REITs and InvITs in India

The Finance Minister Nirmala Sitharaman on Friday said that she was open to bringing tweaks to the Union Budget, and is even willing to take steps beyond it, as and when the need arises, based on the feedback given by economists and experts.

In an interactive session on ‘Budget & Beyond’, organised by the NITI Aayog, the Finance Minister said that the immediate feedback has been motivating, as it has had a “positive impact” on the currency, bond and equity markets. “It is one Budget where the impact on equity, currency and bond market has been positive. Currency market remains stable, bond market has cooled off and equity markets is positive,” Sitharaman said. “If more has to be done beyond the Budget, we are willing to do that.”

On REITs and InvITs

Sitharaman wanted to hear the views of the economists and other tax experts on the Budget. One of the significant submissions that came to the Finance Minister during the interaction was related to a Budget proposal on dividend taxation, and how it would affect Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).

Budget 2020 proposes to tax dividends from REITs and InvITs at the hands of the units holders. This move could affect the demand for REITs and InvITs in the country, say experts.

Rajiv Memani, CEO, EY India, who was at the interaction today, suggested that the Government restore the status quo in this matter. He pointed out that REITs and InvITs had gathered momentum in India and as much as $30-40 billion dollars could come to India over the next 12-18 months if the taxation regime on dividends is not changed. “We request you to restore status quo (dividend taxation) and this will help infrastructure development in a big way,” he said.

Memani said that REITs and InvITs had few years back brought under a separate tax regime that was developed for them based on how they are taxed globally.

He also sought clarity on whether the recent announcement around Sovereign Wealth Funds (SWFs) getting tax breaks for certain investments in the country would also cover pension funds. Allowing tax breaks for global pension funds would lead to India getting more long-term monies, he said.

Kaku Nakhate, President and India Country Head, Bank of America, also brought up the impact of the dividend taxation issue of REITs and InvITs. She said that the Government could consider bringing the concept of witholding tax on dividends paid by REITs and InvITs.

“The point is yield curve could go up (because of change in dividend taxation) and India should not have higher yield curve for infrastructure assets and this is a big point from rating perspective also,” she said.

Refinance mechanism needed

Finance Industry Development Council (FIDC) Co-Chairman Raman Aggarwal said that there is a need to reduce over-dependence on banks by diversifying funding sources.

"There is a need to create a refinance mechanism. Now that NHB's regulatory function has been transferred to RBI, it's prime role is to refinance. It should now refinance Non ND-SI NBFCs", he said. He also said that the PSL window of bank lending to NBFCs for on-lending to priority sectors should be extended beyond March 31, 2020, and the cap should be  increased to 10 per cent.

To achieve $5 trillion economy, there will be a massive need for capex investment in assets. "For this, there is a crying need to promote Leasing of Movable Assets, as is the case across the world. This should be done by exempting the interest component of the Financial Lease from the levy of GST," Aggarwal said.

Chief Economic Advisor Krishnamurthy Subramanian, Revenue Secretary Ajay Bhushan Pandey, Expenditure Secretary TV Somanathan and Disinvestment Secretary Tuhin Kanta Pandey and other officials were present at the interaction.