IT industry unhappy with ‘Millennium’ budget

BANGALORE: The Union budget of 2000-2001 presented by Finance Minister Yashwant Sinha is only a bit softer on the domestic PC manufacturers and resellers and it stops at that. The industry is generally unhappy about the introduction of tax on software exports, special additional duty on the remaining products and not reducing the excise duty to 8 per cent.

The finance minster has removed the Customs duty on hard disk drives (HDD), CD-ROM drives, motherboards and CPUs, while reducing the duty on monitors by five per cent. This would cumulatively affect the end-user as there would be a reduction in the pricing of the PC, albeit very small.

The reduction in import duties of PCs from 20 per cent to 15 per cent, is not perceived as much of a difference, as this would not bring down the prices of the PCs significantly. For the multinational PC vendors, there is not going to be much of a reduction on the prices. "The overall impact on traded goods is not much, but for systems that are manufactured locally there would be only a slight difference in the pricing, as some taxes have gone up and some have come down. While the Customs duty on some components and peripherals have come down, the extension of special additional duty (SAD) on traded goods offsets the reduction in duties, and there is not much change expected in these prices," said a Compaq India spokesperson. He also added, "Expectations of the hardware industry have not been met. The budget is on a net to net basis, it provides incentives for local manufactures, and this is good news. The duty reductions themselves will result in an estimated 3-4 per cent decrease in prices to the end-user."

The various resellers and distributors also were looking at a reduction on the excise duty, but since there is no change on this, they also feel that, there would be no major change in the pricing of a PC as the reduction of tax on components will not help much. A CD-ROM drive costs about Rs 2,000 and a reduction of Customs duty on this be a difference of Rs 100, which is not very significant. Added Frontier Business Systems managing director Ravi Verdes, "In this budget there has not been much of a reduction on taxes. As the excise duty remains the same, the net effect on the pricing of a PC will also not change much, maybe about 1 or 2 per cent."

On the software side, as anticipated the tax concession on software exports will be removed 20 per cent every year for the next five years. Linc Software managing director Chandrakumar commented, "This is not good news. It could be that because of the profit and hype in the software industry the other industry segments must have felt that there is too much of a concession on tax for the software industry. The target of $50 billion set in March 2008 is yet to be achieved and taxes like these will be a roadblock. This is definitely not a good indication. One more important issue is that to encourage domestic software there should have been a reduction on the corporate tax which is about 42 per cent (including surcharge) currently. Domestic software helps in the growth of the economy and also helps the growth of other industry segments in the country." Kshema Technologies president and CEO Ananth Koppar is also disappointed with the tax imposed on software exports, he says, "It is disappointing as this would affect many small and medium software exporters. With no mention on the taxation on ESOP there is still a worry for the employees."

The Union budget also has reduced the customs duty on monitors from 20 to 15 per cent, which is perceived as a good indication by a few. Commenting on this, Vivek Prakash of Samsung India said," Prices on monitors would drop by about Rs 150 and it is a cumulative effect as there is a drop on the CD ROM drives, HDDs, CPUs, motherboards, etc. With a cascading effect on the entire PC, there would be about a 7 to 8 per cent reduction on prices for the end users. The budget is in the right direction as PCs will become more affordable."

President of Bangalore-based Association of Information Technology (AIT), Leslie J. Lean is also disheartened by the budget and said, "This budget is not very much on the positive side. May be the overall pricing of a PC would reduce by about 2 to 5 per cent, which is hardly any decrease. I feel that there should have been some mention of e-commerce in the budget and one consolation is that, tax on venture capital funds are liberalized."

There is no significant impact as far as the networking segment is concerned. Routers that are under the tariff heads of 8544.59, which carries a basic duty was 40 per cent, now will have 35 per cent. "Otherwise, there is no reduction on tax for the telecom segment," said Network Solutions head of marketing and order fulfillment Srinivas Rao.