Govt. likely to consider Nasscom demands : Mehta

BANGALORE: The government has given indications that it would rework the tax

proposals in "a favorable way" on infotech (IT) and software companies

announced in the 2000-01 Budget, said The National Association of Software and

Services Companies (Nasscom).

The Finance Ministry officials have signaled that its demands on ESOP

taxation, overseas acquisitions, anomalies in venture capital sops and tax

holiday for export units under STPs/EOUs/EPZs would be "favorably

considered," Nasscom President Dewang Mehta said. "The finance minister

would probably announce soon in Parliament over the phased dilution of section

10A/10B which gives ten- year tax holiday for software units," Mr Mehta

said after submitting a post- budget memorandum.

According to 2000-01 budget proposals, any new EOU/EPZ/STP unit registered

after March 31, 2000, will not be eligible for the ten-year tax holiday under

section 10A/10B of the Income Tax Act. However, the current units or units

registered in March, 2000, will continue to get tax holiday for the unexpired

period of ten years.

Mr Mehta expressed hope, the government would tax ESOP for income tax as long

term capital gain only at the time of sale. Also, a condition would be inserted

that ESOP cannot be gifted before the first sale or the employee will have to

pay the relevant income tax at the time of gifting (if it happens before its

first sale). "We received signals from the government that we would be on track

on this,"` he said.

The problem with the current provision on tax on ESOP is that the employee

has to pay tax, when he has not earned any cash. This very much defeats the

purpose of issuing ESOP. The employee should be asked to pay tax only when he

receives cash. On levying 20 per cent tax on the profits of software companies

who claim tax under section 80 HHE, Mr Mehta said, the government neither gave

"any favorable nor non-favorable response. "We want to pay tax, but timing is

completely wrong. When the World Trade Organization has given time till 2003 to

phase out export subsidies, what was the great hurry to collect Rs 20 crore and

kill the positive sentiments over IT." He claimed that the 7.5 per cent tax

on one-fifth of software earnings would collect only Rs 20 crore in the current

fiscal.

Mr Mehta demanded that the phasing out of Section 80 HHE should be delayed

till full convertibility of rupee is achieved and when rates of international

lease lines reduced. Nasscom has recommended that Section 80 HHE of the Income

Tax be diluted in a phased manner only from 2003 for a period of five years and

could be phased out by 2008, that is the year in which Prime Minister's National

IT Task Force has kept a target of –50 billion of software revenues.

"Companies acquire firms overseas as a strategic move and would like to

move fast. The government should remove prior approval limits for overseas

acquisitions and allow infotech companies to perform acquisitions upto $1bn or

30 per cent of the market cap," said Mr Mehta.