Nasscom submits recommendations for Budget 2002

NEW DELHI: Nasscom, the apex industry association of IT Software and Service

companies in India, has submitted its recommendations for the Union Budget 2002

to the Government, for consideration. Nasscom is urging the government to remove

certain procedural bottlenecks in order to further growth in the Indian Software

and Services Industry.

Some of these include self declaration of Softex forms, clarification on

on-site software development, tax benefits under Section 10A/10 B, exemption of

export profits on amalgamation/demerger, 80 HHE: Recommendations presented by

Nasscom include that the Softex form as well as Forms A and B should be

dispensed with or be made into Self Declaration Forms to avoid unnecessary paper

work and delays in processing.

Two of the most important demands of Nasscom are related to Section 10A/10B

of Income Tax Act. This Section provides for Income Tax holiday to units

registered with 100 per cent EOU, EPZ, STP. Nasscom has recommended that a

clarification be issued that onsite services will continue to get income tax

exemption with retrospective effect under the new Sections 10A/10B of the Income

Tax Act.






Nasscom has also recommended that CBDT should issue clear guidelines on the
method of computation of deduction under Section 80HHE and clarify the term

technical services to exclude:

Expenses incurred in developing software onsite, Expenses in foreign currency

on marketing offices outside India and Expenses incurred on foreign exchange on

travel.

Section 10A/10B of Income Tax Act is acting as a deterrent to Mergers and

Acquisitions. Another issue in Section 10A/10B is regarding change in ownership

and the tax treatment.

Another recommendation by Nasscom that affects Indian companies is setting up

overseas subsidiaries. Indian companies export software using various methods of

operation and many times, they do not open branch offices in USA, but open their

subsidiaries. Technically, there may be a difference between a branch office and

a subsidiary, but not for practical purposes. Both do same kind of software

development work.

Nasscom has recommended that computer software development and IT software

services should be continued to kept outside the purview of Service Tax in the

domestic market. Various state governments have already reduced sales tax on

software with the government of Karnataka rolling back the sales tax on software

to zero percent.

Nasscom has demanded a tax moratorium of not having any fresh tax on

e-commerce at least for the next five years.

As per the current Exim Policy and Customs notifications, all units in

EOU/EPZ/ STP are physically bonded i.e. equipment in these units cannot be taken

out without prior permission of competent authority.

"As the whole gamut of delivery of software has oriented itself towards

use of telecom links, the very reason of physical bonding has lost its meaning

and therefore, we have requested quick implementation of Government's intention

of removing physical bonding at STP, EOU, EPZ", Karnik said.

Nasscom has recommended allocation of resources for enhancement of

infrastructure like airports and power at the major software cities of India and

has also requested for at least 2 Gbps of national Internet bandwidth.

Some other recommendations include implementation of the recommendations of

national IT task force for bringing down the street price of software and to

retain zero import duty regime on computer software.

While presenting the recommendations, Kiran Karnik, President, Nasscom said,

"The Government has been very supportive to the Indian Software and Service

industry and we hope that it will continue to retain the incentives provided to

help strengthen India's position as a leading software superpower worldwide. In

order to sustain growth and reach revenues of US$ 87 billion by 2008, the

industry is looking forward to the assistance and assurance from the government

that there will be no fresh imposition of tax and that the incentives continue

to be long term."

He further added, "We also request the simplification of certain

procedures that is currently hindering smooth transaction of business, as this

could be crucial. The government needs to take initiatives to make India an

attractive IT destination such as removing procedural obstacles and delays in

the area of infrastructure, opening more STPs, enhancing telecom infrastructure,

reducing the cost of computerization, setting up more educational institutions

in the lines of IITs or IIITs and boost e-commerce activities."