IT industry seeks simplified FBT regime

BANGALORE: Union finance minister Palaniappan Chidambaram has a few hours more to present his second budget under the Manmohan Singh-led UPA ministry.

India Inc, especially the IT sector, is looking at the relaxation of the fringe benefit tax (FBT) that was introduced during the last budget, and increasing the allocation to improve infrastructure. The industry, however, is not unanimous in demanding the total scrapping of the FBT.

“The fringe benefit tax that was brought into effect during the last year needs to be simplified as it is quite a complex accounting process for the IT industry" said Ajay Kela, president, Symphony Services.

Anant R Koppar, president, Bangalore Chamber of Industries and Commerce (BCIC) says that the FBT should be either largely simplified or fully abolished.

“As an alternative, they can increase the corporate tax by a suitable percentage and do away with the FBT altogether as the introduction of this tax has complicated the tax structure further and has also increased the administrative work of Department/assesses,” he said.

Koppar further added, “Moreover as this tax is on a presumptive basis it is also being levied on genuine business expenditure in which employees are not enjoying any collective benefits. Thus the basic purpose of introducing the levy, that is taxation of collectively enjoyed benefits by employees is being defeated.”

Meanwhile, Manoj Chugh, president, EMC India & SAARC, urged the central government to invest in an intelligent information infrastructure to enable technology to touch and improve the lives of every citizen.

"The government should also look at improving human infrastructure. The shortfall of skilled IT professionals is a concern area for the domestic IT industry and the government should address the issue in the budget, by investing in the right technical education infrastructure to create a resource pool of skilled IT workforce,” Chugh said.

“Help promote Innovation culture in the country through the setting up incubation centers to nurture design and innovation. Government should also look at encouraging IITs and other academic institutions to incorporate design and innovation tracks in their curriculum,” said Kela of Symphony Services.

“Investment in Infrastructure has now been spoken about for a long time. A lot of progress has happened in National Infrastructure development with the success of the Golden Quadrilateral project. Yet, focus has not been given to Infrastructure in metros and 2nd/3 rd tier cities development with keeping next 10-20 years of upcoming growth in mind,” said Aravind Melligeri, president, QuEST.

Speaking on the importance of the education, he said that budget must give serious attention to the quality of education in India.

“Recent McKinsey Institute study found that only about 25% of the professional graduates meet the requirements to enter into workforce in a multi-national company,” he pointed out.

“The quality of graduates needs to be far better to keep the lead in the service industry. Our priority in professional education should be Quality before Volume,” he added.

In view of providing boost to the R&D activity in various sectors, Koppar has suggested that the time limit for approval of companies by the prescribed authority be extended by another ten years. Further, the provisions in the Rules restricting the companies to be “exclusively” engaged in R&D activity need to be relaxed.

He also pointed out that the investment in infrastructure projects has always been slow and the high service tax on such projects will further dampen the development of infrastructure projects. He urged the government for more incentives to this sector rather than burdening it with more taxes.

In view of the time limit for realization of export proceeds by STP units, BCIC has asked for a suitable amendment in the Act so as to allow tax benefits to STP units, which have realized and repatriated export proceeds into India within a period of 12 months from the date of exports, or six months from the end of the financial year, whichever is later.

BCIC has sought suitable changes in the Income Tax Act to treat the Indian Business Process Outsourcing (BPO) companies as independent service provider and not as an agent of foreign principal company for the assessment of tax liability.

Javed Tapia, president, Red Hat Indian Subcontinent, said as India is enjoying a high, sustainable growth rate along with low inflation, this is the best time to make a decisive push in the areas of education and infrastructure development.

He further added: "Today India is in the spotlight because of the fact that it is one of the fastest growing economies in the world. The finance minister needs to make every possible effort to capitalize on this by channelizing investments into infrastructure. We also need to show some serious resolve in terms of implementing these projects in a rapid and time bound manner."