'Subsidies rob firms of creative fighting muscle'

What are your expectations from Budget 2008-`09?

First and foremost, I believe that there should not be any special tax benefits to any company in any category. Subsidies and special treatment robs companies of creative fighting muscle to go out there and compete.

How do you rate the previous year's budget with regard to the IT industry?

Some of the major areas like STPI, SEZ and FBT were not aptly addressed. I hope most of these decisions would be taken in forthcoming budget.

Should the Finance Minister extend tax holidays for STPI units?

If finance and/or commerce ministry is going to create temporary advantages for companies by handing out tax holidays as in SEZ and income tax holidays under section: 10A and 10B; then they need to ensure that there is a level playing field for all companies.

With current status of tax holiday for IT companies and timetables for IT SEZ, I see small companies being disadvantaged on several fronts – and there are the ones who can really use cash for their growth!

The ground reality is that IT giants – both Indian and foreign -- are the ones who can and will build their own IT SEZ and take advantage of the IT SEZ scheme.

Smaller companies will not be able to do that as the minimum space available in IT SEZ is going to be 25,000 sq. ft. upwards. This is due to the size of the SEZ. Given this scenario, perhaps tax holidays to 100 per cent EOU under section: 10A/10B should be extended for five more years for smaller companies, say with revenues of less than $100 million.

What are the pain points for companies when it comes to the corporate tax?

Removal of FBT on ESOPs should be given the priority. The government should extend the STPI benefits, or should make SEZs happen more quickly.

The profit margins due to exports will be hit hard due to rupee appreciation. This calls for a reduction of corporate tax levied on companies.

I would also like to share the following views on FBT that was levied on ESOP’s in comparison to the previous year: FBT on ESOPs is against the spirit of entrepreneurship and growth of small, start up companies making it big.

The only way smaller companies can lure bright and talented people from large corporations is with ESOPs.

SME cannot match the salary levels of large MNCs. ESOP rewards are non-linear if the company succeeds. That is the only effective tool with which entrepreneurs can build exceptionally bright and talented teams.

The entire IT industry and semiconductor industry in USA was built on ESOPs. For a non-listed company, by taxing gains in the ESOPS, finance ministry in effect is taxing FUTURE income TODAY.

It is difficult to appreciate the logic of such a move. It will certainly kill motivation on part of people to join small companies that hold the promise of being successful and making rich in the process by way of ESOPs.

The best way for start-ups to get good talent is to provide them with stock option. This is not only financially attractive but also makes the employees work harder for the company's success. FBT on ESOPs will certainly cannibalize SMEs and hence, innovation.