Budget 2022 Expectations: USD14 bn warehousing industry ready with its wishlist ahead of budget

The domestic warehousing industry has spelt out a few of its demands from the Narendra Modi Government ahead of Budget 2022. "We are expecting important policy measures to be announced in the upcoming Union Budget 2022 that would help the industry support the country's growth trajectory,"  Ashish Joshi, Founder, and Chief Executive Officer (CEO), Landmark Capital Limited tells Zee Business.

Landmark is an Asia focused investment management firm in multiple asset classes including private equity, equities, fixed income and arts.

In 2020, India’s warehousing industry was valued at USD 14 billion, which is predicted to expand at a rate of 14.9 percent, reaching USD 27 billion, between 2021 and 2025.

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Joshi highlights his 3 expectations from logistics sector:

Alternative Investment Funds (AIF) and Foreign Investment Will Propel India's Warehousing Sector Forward:

According to SEBI figures as of September 30, 2021, Indian AIFs had raised a total of Rs 5.4 lakh crores in capital commitments, of which Rs 2.4 lakh crores had been invested. One of the primary emphasis areas of the government since the inception of the AIF system has been a competitive taxation environment to encourage the AIF industry's expansion.

Certain laws and explanations, such as the grant of tax pass-through status to Category-I and Category-II AIFs, exemption from angel tax, clarity on withholding provisions, and clarity on taxation of income from overseas investments, have given investors and fund managers confidence in the taxation of AIFs in India.

A ruling by the Bangalore bench of the Custom, Excise, and Service Tax Appellate Tribunal has created uncertainty on the nature of Venture Capital Funds / AIFs set-up as trusts from tax perspectives.

The Bangalore CESTAT ruled that a VCF set up as a trust is a separate legal entity and affirmed the service tax assessment on carried interest distributed by the VCF, equating it to the management company's performance fee.

Venture Capital Funds/Alternative Investment Funds are commonly established as trusts and invest pooled funds for, and on behalf of its beneficiaries. The goal of the AIF/VCF regulations is to regulate and incentivize the fund management sector.

If the AIFs are subject to GST on carried interest, it is likely to become a fund expense that is passed on to investors as an added expense.

We anticipate clarification on the interpretation of taxes of AIFs set up as trusts, as well as the classification of carried interest.

Government must provide clarity on Overseas Investments into India:

As per FEMA regulations “a person resident outside India may hold foreign investment either as FDI or as FPI in any particular Indian company”. This has been a subject matter of different interpretations and viewpoints.

Due to the ambiguous legislative intent behind the provision, overseas investors have been forced to invest through two separate overseas entities or opt for an indirect synthetic exposure in the form of offshore derivative instruments such as participatory notes, swaps, equity-linked notes, and so on.

In some cases, AD Banks have allowed a foreign entity to participate in an Indian company through distinct Foreign Direct Investment and Foreign portfolio investment accounts, both under the FDI and FPI methods.

However, in recent years, the AD Banks have refused to allow such investments through the same FPI organization. In the upcoming budget, we expect clarification regarding the nature of AIF set up as trust from a taxation perspective.

Government’s Need to Step in and Develop New Age Policies to Invest in Logistics

A digitalization transformation strategy should be prioritized in the budget to stimulate the use of digital tools and solutions throughout the logistics value chain. It has the potential to create an efficient supply chain management system.

If the above expectations are addressed in the upcoming Union Budget 2022, the government's aim of facilitating the ease of doing business, reducing tax litigation, stimulating investor confidence, and resuming investment momentum in 2022 can be accomplished.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)