April 04, 2001 | By Keith Martin in Washington, DC

India is extending an income tax holiday for infrastructure projects. The government said in its budget message at the end of February that it would allow a 100% income tax holiday for 10 years — rather than the current five years — for infrastructure projects in the core sectors of roads, rail systems, solid waste and water treatment facilities, ports and airports.

In addition, companies will be allowed to choose in which 10 of the first 15 or 20 years — depending on the type of project — they want to be exempted from income taxes. This should ease a problem that many projects have tax losses for the first few years after they go into service, making the tax holiday meaningless.

The government also proposed to make external commercial borrowing more expensive. Interest paid on loans in foreign currency is currently exempted from withholding tax at the border. This exemption will be withdrawn from June 1.

The government also announced it would propose an electricity bill in the current session of parliament. The bill is expected to provide for restructuring of state electricity boards, or SEBs, commercialization of electricity distribution, and strict compliance with electricity tariffs.