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Union Budget 2015

Inspiring confidence,
empowering change in India

Transport and Logistics


Post-budget sectoral point of view

Table of contents

1. Context
2. Key policies/fiscal and tax proposals
3. Unfinished agenda

Context

Where are we
India has witnessed an attractive growth story in the Transport and Logistics (T&L) sector, on the back of
factors such as rapidly growing economy, increase in outsourcing of logistics, steady supply side changes,
significant government investment in core infrastructure projects and landmark changes in tax and
regulatory policies. The sector is experiencing a number of supply and demand side changes, which are
carving a way for innumerous opportunities.
The growing emphasis on alternative transport modes, thrust on outsourcing driven by growing business
complexity, significant drop in fuel prices and the imminent roll-out of GST are expected to be positive
enablers for the sector. From a policy and regulatory perspective the integration of various logistics
ministries, the government's Make in India campaign and the launch of mega-infrastructure initiatives in
the sector are expected to lay a foundation for growth of the sector.

Key issues/challenges

A highly fragmented market, along with below par infrastructure and low IT penetration, resulting in
acute operational efficiencies

Unfavourable modal mix which is skewed towards road as a major mode of transportation alongwith
under utilisation of other modes such as rail, coastal shipping, ports, etc.

Lack of a unified regulatory logistics body for integrated planning at the Union level across shipping,
road, aviation and warehousing segments

Lack of a focussed plan to upgrade skill set in the wider Indian logistics landscape

Regulatory challenges including lack of policies to push development in coastal shipping, inland
waterways and ports to develop these modes, which are not yet fully used

Delay in the implementation of GST has been impacting the readiness of logistics service providers and
end users.

2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

What was expected


Considering the governments vision to uplift the Indian infrastructure and transportation sector to global
standards, following are some aspects that were expected to provide an impetus to the sector.

Infrastructure development: Focus on infrastructure development in the logistics industry to help


organise the sector, boost private investment and accelerate the supply chain. Develop time-bound
action plans to decongest airports and seaports, shift cargo-clearance activities to inland ports or
airport locations, in addition to improving hinterland connectivity. Develop waterways and national
logistics parks for faster and efficient movement of cargo

Regulatory authority: Formalise a regulatory logistics body by uniting key policy stakeholders across
ministries for an integrated approach towards project planning and development. Also, focus on
improving, ease of doing business in the transportation sector via easing licensing regulations

Integrated transportation: Provide a policy-based push towards integrated transportation by


channelising the movement of commodities via suitable modes of transportation such as; railways
and waterways to progressively reduce the over-burdened road networks

Warehousing: Launch policies to set up free trade warehousing zones in India, in addition to
infrastructure development for cold chain logistics

Skilled workforce: Augment the current skill development initiatives by focussing on transportation,
warehousing and the cold chain sector. This would include setting up aeronautical and maritime
universities that focus on providing sector specific knowledge and exposure to individuals

Private investments: Policy driven promotion of the Public Private Partnership and EPC models for
infrastructure development in the transportation sector

Cross-sector collaboration: Provide a thrust to the transportation sector in tandem with the Make in
India programme that promotes innovation, investment and skill development in the country, across
sectors

Goods and Services Tax (GST): Provide an implementation plan for GST along with the associated
timelines

Taxation: Provide clarity on various direct tax issues like procedural tax assessment for regular and
occasional shipping business, transfer pricing on outbound/inbound leg of freight forwarding
transactions, etc., which are currently bunged in litigation.

While the sector expects several regulatory and functional developments, some of the key ones
discussed above could provide a strong base to the industry. Overall, industry stakeholders and policy
makers expected an infrastructure and investment-oriented budget that is able to address the
associated regulatory concerns and provide the required stimulus to the sector.

2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Key policies/fiscal and tax proposals

Key announcements
The Finance Minister announced an infrastructure-oriented budget, including the following key budget
proposals around the transport and logistics sector.

Sector view

Investment of INR70,000 crore in infrastructure, including INR14,031 crore for roads and INR10,050
crore for railways

Completion of one lakh kilometre of roads currently under construction plus sanctioning and building
another one lakh kilometre of road to connect all unconnected habitations

GST to be implemented by 1 April 2016

Tax-free infrastructure bonds for projects in the rail and road sector

PPP model for infrastructure to be revitalised and realigned

Government to consider plug-and-play projects in infrastructure such as roads, ports, rail lines and
airports

Ports in the public sector will be encouraged, to corporatise, and become companies under the
Companies Act.

Direct tax

Corporate tax rate has been proposed to gradually decrease from 30 to 25 per cent over the next four
years from FY2016-17 and certain exemptions and incentives to be rolled back in a phased manner.

Surcharge on domestic companies increased from five to seven per cent in case total income
exceeds INR1 crore but does not exceed INR10 crore and from 10 to 12 per cent in case total income
exceeds ten crore rupees. Maximum effective tax rate in case of domestic companies would
increase from 33.99 to 34.608 per cent.

Corporate income tax rate for foreign companies remain unchanged

Surcharge on DDT increased from 10 to 12 per cent.

Surcharge on tax on buy-back of shares under Section 115QA of the Act increased from 10 to 12 per
cent, thereby increasing the effective rate to 23.072 per cent

Tax rate on royalty and fees for technical services paid to non-residents reduced to 10 per cent from
25 per cent

Implementation of GAAR provisions deferred by two years; to be made applicable from FY2017-18.
Further investments made up to 31 March 2017 to be outside the ambit of GAAR.

Wealth-tax law abolished

Share of a member in the profits of an AOP to be excluded for computation of book profits under the
MAT provision

In line with internationally accepted norms, concept of Place of Effective Management (POEM)
introduced to determine residential status of a company in India

Sale of units of Infrastructure Investment Trusts by the Sponsor, allotted in exchange of shares of
SPV:
Long-term capital gains exempt
Short-term capital gains taxable at a concessional rate of 15 per cent.

2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Indirect tax

Increase in service tax rate to 14 per cent, subsuming of cess under excise, removal of certain
exemptions, etc. are steps towards convergence of the GST regime

Time limit for taking CENVAT credit on inputs and input services increased from six months to one
year in line with industrys demand

Swachh Bharat cess may be imposed on all or any of the taxable services at the rate of two per
cent of the value of taxable services. The impact on the sector would need to be watched out

Service tax exemption to transportation of food stuff by rail, vessels or road will now be restricted to
milk, salt and food grain including rice, pulses and flour

Service tax exemption for certain pre cold storage services for fruits and vegetables

Service tax exemption on transportation of goods in a goods carriage by a goods transport agency
provided to an exporter extended to transport of goods to the land customs station

Uniform abatement prescribed for transportation of goods by rail, road and vessel, wherein service
tax would now be payable on 30 per cent of the value of services subject to a uniform condition of
non-availment of Cenvat Credit

All services provided by the government or local authorities to business entities are removed from
the negative list and hence would now be taxable

Increase in base for levy of service tax on air travel for all classes except economy from 40 to 60 per
cent

Concessional BCD of 10 per cent on import of specified commercial vehicles in completely knocked
down state and 20 per cent in any other form

Exemption from BCD extended up to 31 March 2016 for specified goods used in manufacture of
hybrid and electrically operated vehicles

Excise duty on chassis of ambulances reduced from 24 to 12.5 per cent subject to actual user
condition

Manpower supply and security services provided by an individual, HUF, partnership firm to a body
corporate are being brought to full reverse charge from partial reverse charge mechanism

Cenvat Credit of Service tax paid under partial reverse charge by the service receiver allowed
without linking to the payment to the service provider.

Impact
The budget is balanced and lays a road map for the economy. Strong focus on infrastructure, along with
ongoing emphasis on the Make in India programme is likely to provide a thrust to the economy and the
T&L sector at large.

Policy impact
Infrastructure reinforcement appears to be a clear focus for the government with an additional
INR70,000 crore investment announced for the sector.
The proposed addition of one lakh kilometre of road network in the coming year would be welcome, as
roads which account for a significant part of the country's freight movement have long been faced with
the problem of over-congestion. Overall, the announcements made in the previous years budget around
coastal shipping, inland waterways, metro rail, networking ports along with various initiatives proposed
by the recent railway budget, fairly balance out inclusive development in the sector. Corporatisation of
ports although has been a part of the current budget, it may not be implemented in the near term.
The transport sector, especially roads, rail and ports would all benefit from the positive economic
outlook facilitated by enhanced investment in infrastructure, focus on improving rural India, Ease of
Doing Business, Make in India related impetus, GST and a more predictable tax environment assured by
the Finance Minister.
2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax impact
Except the laydown of a clear road map for GST, the budget did not have any significant impact on the
T&L sector.

The governments commitment to implement GST by 1 April 2016 is a much needed step which would
significantly improve the supply chain efficiencies and reduce losses

Reduction of rate of Royalty and Fees for Technical Services is a welcome move which would go a
long way to facilitate technology inflow to offer new global technologies

Deferral of GAAR, abolition of Wealth tax, clarity on Indirect transfer and exclusion of AOP members
share for the purpose of MAT would boost investor confidence

Rationalisation of capital gains regime for the sponsors on sale of units included in the initial offer and
listed subsequently on recognised stock exchange is a positive step.

Summary
The Union Budget has attempted to create an institutional and regulatory framework for the future. The
governments focus on the Make in India programme is further expected to provide a boost to the
transport and logistics sector. Overall, the budget has been greeted with positive reactions from the
stakeholders.
Road map to the implementation of GST
The Budget laying down a clear road map for the implementation of GST by April 2016 has been lauded
by the industry and the markets at large. Further to it, the increase in service tax rate, subsuming of cess
under excise, along with the removal of certain exemptions are an indication towards the GST regime.
The increase in rates is also a precursor to GST so that the industry does not feel the steep
tax increase on introduction of GST, with proposed rates at 16 per cent or more.
Addressing the Direct Tax Regime
The budget has also attempted to provide a road map for direct tax regime including reduction of
corporate tax over the next four years, deferral of GAAR by two years and abolition of wealth tax.
Announcements on various tax issues/incentives missing
The industry expects more clarity in the future, on various direct tax issues which are clogged in litigation,
such as procedural tax assessment for regular and occasional shipping business. Further, the
expectations of the industry with regard to tax incentives such as infrastructure status for port support
services, extension of tax incentives for all warehouse facilities, etc. need to be clarified in the near future.

2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Unfinished agenda

What remains
Direct tax
Service tax collected on specified shipping income to be excluded in gross freight for computing
deemed taxable income under Section 44B
Clarity on claiming tax holiday under Section 80-IA by ICD and CFS
Appropriate guidelines to be provided in respect of regular and occasional shipping business
Extension of benefit of deduction under Section 80-IA in respect of upgradation and extension of
existing airports
Providing tax benefits to Maintenance, Repair and Operation (MRO) companies for setting up
facilities in India.
Indirect tax
Demand for exemption to transportation of LNG using chartered vessels, maintenance of rail projects
(including metro projects), transportation of goods by road to places outside India to countries like
Nepal, Bhutan, etc. not considered.

What is expected going forward


The Finance Budget must be lauded for the emphasis laid down on infrastructure development, thereby
improving the operational efficiency for roads, and railways, to improve the modal mix and bring down
transportation costs. Following are some of the recommendations that can be considered to develop a
universal road map for the industry:

Channelise the movement of commodities to suitable modes of transportation to improve the modal
mix. Divert the transportation of bulk commodities from road to increasingly appropriate modes
such as rail and waterways, thereby freeing up capacity for fast moving goods

Increased co-ordination between the various ministries to integrate and expedite decision making

Set benchmarks and standards for the industry, to drive uniformity in warehouses, storage, and
transportation equipment and bring them up to high quality levels

Focus on decongesting airports and seaports, shifting cargo-clearance activities away to inland or
port or airport locations

Provide clarity on the various ongoing tax issues so as to mitigate litigation and thereby provide a
boost to the ailing sector

In light of the overall theme of rationalisation of the tax regime, GST is expected to come to the
rescue in the near future.

2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

KPMG in India contacts:


Nitin Atroley

Partner and Head


Sales and Markets
T: +91 124 307 4887
E: nitinatroley@kpmg.com

Jaideep Ghosh

Partner and Head


Transport and Logistics
T: +91 124 307 4152
E: jaideepghosh@kpmg.com

Prahlad Tanwar

Director
Transport and Logistics
T: +91 22 3091 3417
E: prahladtanwar@kpmg.com

kpmg.com/in/Budget2015

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2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All
rights reserved.
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