CIOIN

The Union Budget announced yesterday by Finance minister Pranab Mukherjee has disheartened many a players in the Indian IT industry, especially those from the SMB segment. The absence of any extension of the tax holiday under the Software Technology Park Scheme (particularly for the small and mid-tier IT players), proves to be a dampener.  Also, the levy of Minimum Alternate Taxes on Special Economic Zone (SEZ) Developers, as well as existing SEZ Units (at an increased rate of 18.5 percent of book profits, such SEZ units being hitherto tax exempt),  is a setback for the industry which has been keenly looking at expansion opportunities in SEZs.  

“No extension on STPI benefits is very demoralizing. SEZ units being levied with MAT 18.5 percent now is, going back on the commitment of keeping SEZ units tax free for some more years to come,” says Hanuman Tripathi, Group Managing Director, Infrasoft Technologies. Similar discontent has been voiced across organizations and Keshav R. Murugesh, Group CEO, WNS Global Services adds, “We are sorely disappointed that there was no mention of extension in the tax benefits under the Software Technology Parks of India (STPI) scheme. This will be a dampener for the USD 60 billion Indian IT/BPO industry that contributes nearly 5 percent of the country's GDP. We had hoped that the sunset of the STPI scheme would be extended to coincide with the introduction of the new DTC from April 1, 2012”.

Also read: Union Budget 2011: Indian IT Industry’s Wish List

The feeling of neglect was palpable in statements coming across from Vimal Kamdar, CFO, Saviance Technologies who says, “The Budget seems to focus more on sectors like agriculture, education, infrastructure, PSU/RR banks amongst others. More emphasis on health & IT sectors, particularly SME would have been welcome & desired for competitiveness amongst the smaller players.” Some even called for long-term measures instead of the one year focus that the Budget provides. “We look forward to moving away from an ad-hoc annual budget exercise to a long-term, stable and transparent taxation regime, whereby India can be integrated into the Global supply chain,” says Ravi Swaminathan, MD & Corporate VP Sales & Marketing, AMD India.

But all is not lost for the IT industry as the Budget does provide something for them to cheer about. An increased focus on e-governance and consequent opportunities along with a positive step towards Goods & Services Tax (GST) is being welcomed by some of the other players. “The FM has said that 5 large projects of the government namely Unique Identification Authority of India (UIDAI), Tax Information Network (TIN), National Pension Scheme (NPS) Goods & Services Tax (GST) and National Treasury Management Agency (NTMA) will be put under an IT enablement process. Besides there are many other initiatives announced for creating a National Knowledge Network, Providing bandwidths to Gram Panchayats etc.” says Tripathi from Infrasoft Technologies.

Adding to the congratulations on that front Vilas Kanyal, Head  - Asia Pacific, Mastek says, “We welcome the announcement by Hon. Finance Minister for Good and Services Tax (GST) roll-out from April 1, 2012. The Technical Advisory Group (TAG) constituted after last year's budget  had proposed a GST Network (GSTN) for managing IT systems including the common GST portal”.

Analysts also feel that the reduction in the current surcharge rate for domestic companies (from 7.5 percent to 5 percent), coupled with an intention to phase it out altogether, is also a step in the right direction. “Industry IT players with global footprint/ subsidiaries could also seek to benefit from the concessional 15% tax rate, on dividend remittances from their foreign subsidiaries,” says Ravi Vishwanath, Tax Partner, Ernst & Young.

“The budget of 2011 is largely aimed at continuing the growth momentum seen in 2010. The emphasis has largely been on bridging the digital divide through use of IT and technology. This will translate into boost for domestic IT consumption,” confirms Kamlesh Bhatia, Research Director, Gartner.

According to Vishwanath, the Budget continues to focus on growth, along with fiscal consolidation and stability as its key themes.  The IT Industry though would believe that this Budget could have delivered more, particularly on the tax holiday extension. However, this must be viewed in the context of the Government’s stated policy of convergence with DTC proposals, and consequent phase-out of most tax incentives, he says.