Customs Procedural Issues Fiscal policies for infrastructure CII believes that the time has come for the government to outline bold and visionary fiscal initiatives, as there is a critical need for significantly greater infrastructure expenditure. Some of the schemes suggested below may be anathema to the traditional mindset of tax collectors. But it is important for them to appreciate two simple tenets. If the tenure of a zero tax break is inadequate to induce investments, then it can never generate positive tax revenue after the period of the break.
Infrastructure has huge positive externalities and generates significant growth potential.
Therefore, even if an infrastructure project is shielded by a seemingly long tax break, it can still generate sizeable tax revenue through its myriad multiplier effects. The tax shield is wholly inadequate to jump-start investments in critical areas of infrastructure. If the tax breaks sufficed to generate significantly greater cash flows, India would have seen a host of project closures in power, roads, housing and telecom. The most appealing way of ensuring viability and financial closure is to radically extend the tax holiday. This would reduce the extent of escrow demanded by the creditors thus giving breathing space to the financially beleaguered State Electricity Boards, and also mute the increasingly strident insistence upon sovereign counter-guarantees.