Analysts dissect the good and bad

BANGALORE, INDIA: Looking between the lines, the industry analysts and the Association heads jot down the pros and cons of the Union Budget 2010 announced by Finance Minster Pranab Mukherjee.

Som Mittal, President, NASSCOM said, “There are numerous positives for our industry in this budget, particularly on simplification. The removal of anomaly in Section 10AA of the SEZ Act and the Finance Minister’s reaffirmation on the importance of SEZs will help the industry to take forward its SEZ plans across the country. The enhanced deduction on R&D investment will propel greater thrust on innovation and IP creation helping India to realize its vision of being the global R&D services hub”.

He added, “While overall the budget is positive, we are disappointed with the increase in MAT which will be a burden on small and medium businesses. There was also no move towards announcing parity of incentives between the STPI and the SEZ scheme which is again necessary for small companies and development of tier 2 and tier 3 cities.”

Vinnie Mehta, executive director, Manufacturers’ Association for Information Technology (MAIT) said the organization is glad that the Finance Minister has unveiled the roadmap for GST with a definite date for implementation i.e. April, 2011.

“Exemption of Special additional Duty (SAD) on pre-packaged goods for retail is also a welcome step as refunds for SAD were not forthcoming. However, to sustain hardware manufacturing in the country in the long run, it is critical that SAD on the input components be exempted as well,” he said.

Sharing his views on the budget, Kapil Dev Singh, Country Manager, IDC India said, the broad based growth in various industry segments will have a derived effect on the IT market.

“This, coupled with the government’s commitment to spend on IT, will augur well for the IT players focused on the domestic market. The trend of domestic IT growth surpassing the IT exports growth is more certain, especially with the current focus on the domestic market and measures that will leave more in the hands of the consumer,” he added.

Tax benefit

One of the announcements which was highly appreciated by the everyone were the new tax slabs. Commenting on the announcement, Vishnu Bagri, Partner, Accretive Business Consulting,  said, “The increase in individual tax slabs is going to augur well for the salaried professionals. A professional with a salary of Rs 5 lakh is going to save Rs 20000; while a professional with Rs 8 lakh salary is going to save Rs 50000. This is going to contribute in the improvement of the industry-employee morale.”

He added, “The conditions for claim of refund for input service taxes for service exporters are relaxed. It would now suffice if the client is located outside India and the consideration is received in convertible foreign exchange. This relaxation should put to rest significant litigation on the debate of where the services are used and is going to augur well for the industry.”

On the flip side, he feels that the FM has not succumbed to the demand of the Indian IT Industry for an extension of the tax holiday period under the STPI/EOU regimes beyond 31 March 2011. He noted, “The industry would have benefited considerably if an exemption from the 4 per cent additional custom duty was extended to IT hardware resellers. Today the hardware industry has significant refund claims locked with the department. It should be noted that the FM has extended this benefit to goods such as mobile phones and watches.”

Girish Trivedi, Deputy Director, ICT Practice, Frost & Sullivan, South Asia and Middle East said, “The announcement of financial inclusion banking for all villages with population of 2,000 will be positive for IT as well as Mobile Service providers.

He added, “The announcements regarding UID is positive and is seen as the government is trying to improve the use of IT for G2C (government to consumer) services. The same is re-enforced for Smart Card extension to NREGA as well as the entire tax administration; opening of new centers.

The 'Bharat' factor

Partha Iyengar, head of Research, Gartner India said, there is a more balanced emphasis on ‘Bharat’ as opposed to ‘India’ which is a good move, since ‘inclusive growth’ is needed to reduce the gap in the digital or urban VS rural divide.

He added, “The bigger need for IT in India is in some of the broader macro areas, that also impact the overall competitiveness of India in the global scheme of things. Budget watchers should now stop looking for specific ‘sops’ for the industry and focus more on the macro issues affecting the entire economy, as an indicator of the positive or negative impact on the IT industry.”

N.C.Hegde, Tax Partner; M & A tax leader, Deloitte India adding to the list of not-so-good news for the industry said, “Though the Finance Bill contains a provision for exemption on transfer of assets on the conversion of existing companies/partnerships into a LLP, the same comes in with a lot of onerous conditions and is limited only to small companies/partnership firms. However what is disturbing is that by implication, conversions not satisfying the conditions would not qualify for the exemption.”

Also, he added, “Gifts of shares of closely held companies would be taxed as income in the hands of firms and closely held companies effective June 1 2010. The thrust of Finance Minster on introduction of Direct Tax Code effective 1 April 2011 is welcome given that the Direct Tax Code has proposed tax neutrality for all genuine business restructuring.”