Tax breaks for industry to treat water might be a good idea. Can government make it work?
On January 12, 2006, the Central Board for Direct Taxes ( cbdt ) issued a circular stating that effluent conveyance and treatment systems for chemicals industries will qualify as 'infrastructure' facility to be considered for tax breaks under section 80- i a of the Income Tax Act, 1961. Experts reckon the move will give incentives to industry to install wastewater treatment plant. They also fear that certain strictures in the circular would lead to unnecessary bottlenecks. Pollution management experts are also unhappy that the circular overlooks the issue of maintenance, monitoring and, most important, reuse of treated waste.
"It is good to provide incentives for a polluting enterprise to invest in cleaning up their wastes," says R C Trivedi, additional director, Central Pollution Control Board. But how easy will it be to get tax exemption on the basis of this circular? Brijesh Mathur, a taxation expert in New Delhi, points out, "Only those industries that have an agreement with the government -- Union, state or local -- or any other statutory body will be given tax incentives. So, it's not certain if effluent treatment plants constructed and maintained by all industries will be eligible for tax breaks."
It is also essential that the projects for such exemptions should have been implemented on or after April 1, 1995. "What kind of agreement shall we have with the government bodies?" asks Mangi Lal Gandhi, a textile industry association member in Pali, Rajasthan, and director of Shankeshwar Fabrics Private Limited. "State pollution control boards (pcbs) give us no-objection certificates to run our units. Won't that be enough to avail this incentive?" Gandhi also fears this will add to the bureaucratic delays and related snags already faced by industries.
There are more grey areas. For instance, section 80- i a states that any company developing, managing or operating facilities for treatment of water and sewage treatment or irrigation and sanitation units for the Union or state governments is eligible for tax exemptions. In such a case, experts point out, the provision would attract more players, thereby increasing the competition and reducing the contractual fees and other overheads that industries have to incur. Another group argues that such a move would result in revenue losses, which would inhibit development programmes.
Why should there be tax breaks for a company that is charging a price for its services, they ask.
Trivedi says the circular misses out on a crucial aspect. "In a water-stressed country like ours, it is essential that such incentive schemes incorporate reuse of treated wastewater," he emphasises. With industrial water prices increasing in most cities, reuse of treated waste will make more economic sense.
Pollution experts also suggest the next step could be to provide incentives to promote cleaner production technologies. Doubts regarding the interpretations and workings of section 80- i a remain. Senior cbdt officials were unavailable for comment.
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