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Union Budget 2012 Invites Mixed Reactions from Analysts

Added 18th Mar 2012

The Union Budget has received a mixture of brickbats and bouquets from the IT industry. Do the budgetary provisions address the overriding concerns of the industry? Post the widely followed and discussed Union Budget of 2012-13, the analysts offer their realistic assessment and draw the good news/ bad news matrix from the budget. Here are some of the post budget reactions that they have put forth

 

Ravi Mahajan, Partner, Tax & Regulatory Services, Ernst & Young India

"One of the key demands of the IT / ITES sector was certainty on transfer pricing arrangements, given the substantial amount of disputes that have arisen over the last few years. Provisions relating to Advance Pricing Agreements which have now been introduced, in advance of the DTC, will assist in reducing these disputes. Hopefully, rules relating to safe harbour regulations would also not be delayed further, so as to further reduce the scope of disputes."

"In his speech, the Finance Minister, has also promised faster refunds of service tax and an enhanced scope for input credits for service tax. This will be of huge benefit for the IT / ITES sector since substantial amount of cash flow is locked up in refund claims. We will obviously need to see the fine print of the provisions as well as the actual implementation of the rules at the ground level, to confirm that the promises are getting delivered. One area where nothing has been done is extending the life of MAT credits, which has started impacting the balance sheets of companies in the IT / ITES sector."

Partha Iyengar, Vice President, Distinguished Analyst, Regional Research Director, Gartner India  

The budget overall is a fairly ‘political budget’, with very little in the way of bold (or even timid) reforms to drive economic growth. Given the current economic climate it seems to be focused on not upsetting anyone (read political ‘allies’) too much, by not trying to please anyone too much. The only slight silver lining is the verbal emphasis and some increase in outlays to the infrastructure sector, but, given the massive requirements here, even this is likely to be seen as too little too late.  From an IT sector perspective, there is nothing specific that is either a strong negative or positive. Some of the key areas of concern for the industry, like skills development have not received any major focus.Overall would rate the budget as a 3/10.

Praveen Bhadada, Director- Market Expansion, Zinnov

"It is surprising to see that there is no direct focus being given to the IT industry in the budget this year. World over, this decade is defined as a decade of information technology driven inclusive growth and the lack of focus on IT in the budget would not do any good to the already deteriorating image of India as an investment destination. Having said this, there are lot of indirect opportunities that will arise as the government lay specific focus on areas such as skill development, micro finance banks, national land bank, custom duty relaxation on mobile phone
parts, etc.

Companies who can focus on these priority segments from an IT stand point are poised to benefit from the large scale that India offers. Telecom, manufacturing and infrastructure are the key verticals to focus on. Flexibility on VC investments, opening up of Adhar platform etc. would also provide ample opportunities to tech focused startups."

Pranav Sayta, Partner, Tax & Regulatory Services, Ernst & Young India

"Budget 2012 appears to be a mixed bag for the IT industry. The introduction of Advance Pricing Agreements (‘APAs’) is a step in the right direction for bringing about certainty in transfer pricing disputes, an area which has plagued the industry for a long time now. However, there has been no proposal for the extension of life on MAT credits, which the industry has been pushing for. The Finance Minister’s promise to improve the service tax refunds process as well as the enhanced scope of input credits for service tax will also be seen as a welcome move by the industry."

 

Vikram Doshi - Tax partner , KPMG on R & D

"At present, companies engaged in certain businesses are eligible for a tax deduction of 200 percent on certain expenditure incurred by them on in-house research and development facility. This deduction was slated to expire on 31 March, 2012. It is proposed in the Union Budget 2012 to extend this deduction by another period of 5 years. The industry had demanded this benefit given that innovation has become an imperative in today's economy without which the industry will not remain competitive. This is a welcome move especially given that implementation of Direct Taxes Code is now delayed. The above proposals dovetail with government objective of ensuring that R&D is given enough emphasis given India's innovation standing vis-à-vis the rest of the world."

 

Manish Bahl, Country Manager – India, Forrester Research

"The 2012-2013 budget is aimed at achieving long-term growth for the economy and will create adequate indirect domestic opportunities for IT vendors as the government didn’t make any significant announcement for the direct promotion of IT industry. While the increase in excise duty from 10-12 percent will have a marginal impact on the sale of desktops, laptops and tablets, the government’s focus on improving infrastructure, creating efficient delivery mechanisms, and improving e-governance will provide substantial indirect domestic opportunities to IT vendors. On the other side, a neutral impact on telecom industry will be seen; Although the increase in service tax from 10-12 percent will make usage of mobile phones bit expensive, government’s decision to make fixed network for telecommunication and telecommunication towers eligible for validity gap funding through public private partnership (PPP) is a step in the right direction."

"The budget categorically highlights the need to “Deliver More With Existing Resources” and IT will act as an enabler for the government achieve its objective. A shift in government landscape is required to meet its growth target by addressing key challenges such as limited energy supplies, shortage in infrastructure, weak healthcare system as well as tax collection system associated with rapid growth among others. Forrester Research believes that this shift will be supported by new and innovative delivery models for the deployment of effective technologies. The days of only investing into the system are over for India as integrated incremental approach will help the government meet its objectives."

 

Sabyasachi Patra, Executive Director, Manufacturers’ Association for Information Technology (MAIT)

“It is a good move to enhance the enrollment of aadhar cards by another 40 crores as it will lead to financial inclusion through schemes like MNREGA, old age and other pensions and scholarships. Together with the planned fibre optic connectivity of gram panchayats, this will lead to more usage of consumer premise equipment’s and other handhelds. It is a welcome move to use technology to cut down leakages in disbursements of subsidies in the form of mobile-based Fertiliser Management System whereby the subsidy is transferred to the retailer and finally to the farmer. This will lead to increased buying power of the rural areas. We welcome the excise duty reduction to 6 percent for LED lamps and fully exemption of SAD. Full exemption from basic customs duty and additional duty of customs to parts, components and sub-parts for manufacture of memory cards for mobile phones, and full exemption of basic customs duty on LCD and LED TV panels. "

"The allocation of 1000 crores for National Skill Devleopment Fund as that will help in bridging the gap in skills. Setting up a Credit Guarantee Fund to improve flow of institutional credit for skill development will also be a good move as it will help in acquiring specific skills by individuals."

"The FM has moved in the right direction in harnessing the power of technology to ensure direct transfer of subsidies to retailers and farmers thereby reducing leakages. In that regard, mFMS (mobile based Fertiliser Management System) is a great step. I also welcome the move towards direct transfer of subsidy for kerosene into bank accounts of beneficiaries. If successfully rolled out, it can help in reducing our fiscal deficit and is likely to increase the buying power and hence will have multiplier effect”

 

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