Budget disappoints small IT firms

BANGALORE, INDIA: The Indian IT industry Friday expressed disappointment over the absence of incentives for small and medium IT businesses and resented the three per cent increase in MAT (minimum alternative tax) in the union budget for fiscal 2010-11.

"There is no move towards announcing parity of incentives between the STPI (Software Technology Parks of India) and the SEZ (Special Economic Zone) scheme, which is necessary for small companies and development of tier-2 and tier-3 cities," industry organisation Nasscom (National Association of Software and Services Companies) said in a statement.

Tax benefits for all IT firms under the STPI scheme are available till March 31, 2011, while the small and medium enterprise (SME) sector does not get the equitable benefit under the SEZ scheme unlike large IT firms.

"Though the IT taskforce, formed by the department of information technology (DIT), recommended bringing STPIs on par with SEZs, the budget has not considered it," the statement noted.

Nasscom also expressed disappointment over the increase in MAT to 18 per cent from 15 per cent, as it would burden the SMEs, which are still struggling with the impact of the global recession.

According to Cognizant Technology Solutions Corporation vice-chairman Lakshmi Narayanan, the competitive edge of the Indian IT industry vis-is its peers across the globe would be blunted by allowing the STPI tax benefits to lapse.

"While large IT firms will be able to mitigate tax pressures arising from the expiry of tax holiday by moving into SEZs, small and medium firms, which form the bulk of the companies registered with STPI, will be impacted adversely as they do not have the size, scale and financial wherewithal to avail of the benefits of SEZ," he contended.

As SEZ development is still concentrated around metros, the end of STPI benefits will impede distributed and balanced growth in tier-II and tier-III towns in the absence of incentives for moving there.

Patni Computers chief financial officer Surjeet Singh also regretted that the budget had not addressed the industry's demand for extension of tax holiday under the STPI scheme as per section 10 (A) of Income Tax Act.

"The increase in MAT on book profits will result in higher outgo of cash in the short term and affect Indian corporates adversely though the impact had been cushioned by lowering corporate surcharge to 7.5 percent from 10 percent," Singh said in a statement from Mumbai.

Lauding the setting up of Technology Advisory Group for Unique Projects along with substantial outlay (Rs.1,900 crore) for UID (Unique Identification) project, Singh hoped the group would help in accelerated execution of large strategic government IT projects, thereby benefitting IT companies.

"The budget also proposes to ease the process of refund of service tax credit to exporters of services, which will streamline the current cumbersome process," Singh said.

Nasscom president Som Mittal, however, said the reduction in personal income tax would benefit employees in the industry and drive both enhanced savings and consumption.

At the same time, clarification on duty applicability for pre-packaged software and service tax refunds will provide the much necessary simplification of policies," he said.

Terming the budget progressive, Nasscom chairman Pramod Bhasin said the setting up of the Technology Advisory Group under UID project chairman Nandan Nilekani, automation of central excise, GST (goods and service tax) and commercial taxes would enable the vision of citizen centric governance.

"We appreciate that the finance minister has recognized the key role our industry can play in driving technology led inclusive growth across the country. We will partner with the government to drive inclusive growth," Bhasin said in the statement.

© IANS