Union Budget is disappointing, says NASSCOM

NEW DELHI, INDIA: NASSCOM, the voice of the Indian IT industry, today expressed its disappointment on the Union Budget Proposals 2011-12 “that chartered a roadmap on sustaining a high growth trajectory for the country, but missed the relevant thrust for business to enable this growth”.

The services sector was lauded for its double digit growth rates, but the fastest growing services industry, IT-BPO faced double negatives — imposition of MAT on SEZ and withdrawal of tax exemption under Section 10A/10B, NASSCOM said in a statement.

“The SEZ Scheme was announced as an Act of Parliament and only last year it was clarified that under Direct Tax Code (DTC), SEZ units set up till 2014 will continue to get profit-linked tax exemptions. Imposition of MAT at 18.5 per cent with an effective rate of nearly 20 per cent, nullifies the impact of any such incentive. This will be a deterrent for small companies, tier 2/3 cities that were looking at expanding in the SEZ scheme.”

NASSCOM said it had also requested the government that since the DTC will come into play from 2012, the tax exemptions under section 10A/10B should be extended by one year, so that companies can prepare for the new regime and relevant incentives as applicable for the services sector can be introduced under the DTC.

While the industry has performed well, the uncertain global environment still continues and protectionist sentiments in key markets are concern areas, opined NASSCOM.

“Inflation is increasing the burden on employee costs and small companies need a supportive policy framework. It is disappointing that the government has not considered the needs of the small and medium enterprises.”

NASSCOM made it clear that it will urge the relevant ministries to reconsider this decision before the budget is passed by Parliament.

However, the organization welcomed certain policy announcements related to service tax refunds and transfer pricing aimed at simplification and reducing litigation.

“It is important that the implementation framework and clarity on applicability is announced on these schemes, so that a clearer policy framework can emerge. We hope the Finance Ministry would review every three months the implementation of the new provisions announced,” said NASSCOM.

Technology implementation was a key theme that found relevance in the budget proposals — UID, GST Network, National Knowledge Network, Centralised Processing Units, rural broadband etc would provide additional opportunities for the industry to partner with the Government, it added.

Skills development, infrastructure, innovation and social development were other welcome highlights in the budget that would enhance India’s long-term competitiveness, according to the industry body.