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Budget 2011: Make IT simple please!

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CIOL Bureau
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MUMBAI, INDIA: The central government has played a key role over the past decade to boost the IT sector, whether it is the Software Technology Park of India (STPI) scheme or a stimulus package during recession. With such schemes coming to an end, the IT businesses are further expecting continuation of such sops.  

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As the Union Budget for fiscal 2011-12 is slated for February 28, the IT industry has come up with its wish-lists and expectations from the Finance Minister in support of their businesses.  

Clear the chaos

According to Hanuman Tripathi, founder, Infrasoft Technologies, in the present tax structure the issue of tax on packaged software solution remains controversial as it has included two components - Value Added Tax (VAT) and Service Tax, which are applicable on software license sale and packaged software implementation and support services.

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“There is confusion with regards to the government wanting to apply excise duty on domestically produced software and custom duty on imported software. We also keep getting enquiries from local Octroi authorities, as the Octroi department considers software to be ‘goods’ and levies Octroi duty,” says Tripathi. He adds that this ongoing confusion needs to be sorted out at the earliest.

“There are currently a lot of issues around the Service Tax which need to be resolved on an immediate basis. Simplification of these issues and concessions to entrepreneurs and start-ups will help provide fuel for growth of Indian industry,” points out Ashank Desai, Mastek’s co-founder.

Interestingly, Octroi duty varies across different state governments and states like Gujarat have fully abolished Octroi many years back. Similarly, VAT is levied unequally across states too.

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While this situation requires the various tax departments of central and state governments to come together and formulate simple tax mechanism, Tripathi feels that a standardized Goods & Service Tax (GST) on all items will resolve all the problems.

Though the UPA Government has already proposed GST early this fiscal, it has failed to implement as it is still under review of tax experts and state governments.

“GST has been on the agenda for some time now and has immense benefits for both central and state levels. Government needs to work closely with states and move towards its implementation stage now,” says Desai.

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Let STPI be

The STPI, which is hugely popular among IT businesses for various tax benefits, will end this fiscal but the demand for its extension is getting louder now than before.

According to Atul Nishar, Hexaware Technologies Ltd’s chairman, the Finance Minister should consider extending the STPI as it beneficial to Indian IT industry. He reckons that since the government hasn’t implemented the Direct Tax Code (DTC), it becomes significant to extend the STPI by one year as it provides succor to the industry.

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Tripathi, however, holds a slightly different view on STPI

“Space in STP/SEZs should be made available at discounted rates to mid-size/mid-cap companies who already don't have a software factory in an STP/SEZ. This will create large delivery capacity at lower real estate costs as the rapidly rising realty costs in most cities threaten to become a deterrent to software industry and its competitive advantage will be lost soon,” he says.

With regard to small and medium businesses (SMBs), Force 10 Networks’ vice president - SW Engineering and India Operations, Prakash Sripathy, says, “Extend tax holiday for STPI units for another year as we do not want to prematurely abort recovery from 2008 meltdown. This also helps us to be competitive with other emerging IT/ITES service providing countries for small companies while we work through the transition.”

Besides, the Minimum Alternate Tax (MAT) and Fringe Benefit Tax (FBT) are among key concerns for the IT sector. According to Desai, for the SMBs based in the IT sector, there is a need to have some new clauses in the FBT as it encourages and gives a boost to this sector.

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On the Fringe

“MAT credit carry-forward for 10 years to set-off against normal tax liability in the current IT Act, should be retained in DTC as well,” comments Sripathy. More so he stresses that the Service Tax refund for 100 per cent export-oriented units (EOUs) should be made simple and transparent or else Service Tax should be fully abolished.

However, on a larger benefit, Rohit Mahajan, Saviance Technologies’ founder and managing director, expects that STPI benefits should be extended, government should bring in uniformity in various laws across all states and the higher tax savings limit should go up to Rs.3 lakh to benefit more people.

While the IT sector, like various other sectors in India, will have to wait and watch till the Financial Minister announces the Union Budget, many experts in other sectors strongly believe that the IT sector, which earns huge overseas revenue in dollars, shouldn’t be given more tax benefits and incentives.

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