CPI-M wants STPI benefits to end in 2009

Charlotte Cooper and Surojit Gupta

NEW DELHI: The tax-free status of software firms in India should come to an end as scheduled in 2009, a key communist ally of the government has said.

Asked in an interview whether the 10-year tax-free status of software technology parks of India (STPI) should end as planned, Communist Party of India (Marxist) politburo member Sitaram Yechury replied: "Yes, I do think that in 2009 it should end."

The National Association of Software and Service Companies (Nasscom), the industry's lobby group, has asked the government to extend the tax exemption for another 10 years after it lapses in March 2009.

Software firms are hoping that once the STPI scheme ends, they may be able to migrate to a Special Economic Zone (SEZ) and benefit from tax incentives there.

Yechury, a key architect of his party's economic policies, said he was against them getting tax breaks via migration to an SEZ.

"The tax exemption for them continues until 2009 and now if they are allowed IT SEZs, will the tax exemption continue for another 10 years?" Yechury said.

"What is the point in the economy doing very well but the government not getting a share of the revenue which it can use for the other sections?"

The CPI-M is the biggest of the communist parties, whose support is critical for the survival of the Congress party-led government.

Nasscom says the STPI scheme is a big success and a key factor in the growth of the industry, which is likely to see export revenue rise 27 to 30 percent to $29 billion or more in the fiscal year which ends on March 31.

Up until now, software service units set up in STPIs have not had to pay taxes on exports, but they do have to pay taxes on business they get from India.

So far, service companies with complete export focus have been required to pay little or no taxes. They also do not have to pay any import duty on imports of capital goods and IT equipment.

Now, however, income from exports will come under a Minimum Alternate Tax which was extended to the sector in the federal budget for 2007/08 last week

The tax is much lower than full corporate tax rates.

© Reuters