NASSCOM: Last budget slip-ups for IT/ITeS & current hopes

BANGALORE, INDIA: On Thursday, when Union Finance Minister, Palaniappan Chidambaram, will announce the budget proposals for 2012-13, information technology (IT) and IT-enabled Services (ITeS) companies are hoping for new initiatives, besides scrapping or reduction of certain tax structures, which they believe burden them.

At the outset, both the IT and ITeS industries look forward to slashing of minimum alternate tax (MAT) to five per cent for those in Special Economic Zones. Under the present IT laws, business losses can be forwarded only for a minimum of 10 years and the same should be allowed to carry forward without any limitation.

The Confederation of Indian Industry (CII) has also proposed the same and urged the government to formulate a new SEZ policy, in order to spur growth in IT exports. Also, it has stressed upon increased efforts to evolve and implement a policy for boosting research and development in software, and promoting the industry in tier-II/III towns for inclusive growth.

According to the National Association of Software and Services Companies (NASSCOM), the software sector is driven by innovations and has a large number of start-ups. "There is a need for streamlined processes for regulatory and tax compliances. Further, early stage funding available is inadequate, and this should be addressed."

When CIOL contacted NASSCOM president, Som Mittal, he endorsed the proposals enunciated by the industry body, including, "Set up National Entrepreneurship Mission with a India Technology Start-Up program that offers seed capital funding, incubation, market access and compliance burden, as well as promote activity in tier-II and -III cities."

NASSCOM, however, appreciated technology integration with governing process, such as cash transfer and subsidies. "GST (Goods and Services Tax) will require sophisticated technology backbone, and IT can enable achieving development goals for education and healthcare, for which the government has to make allocations."

In its view, allocation of budgetary resources is crucial to enhance national capability to address cyber security challenges.

On the kind of measures taken by the Centre for the IT/ITeS industry, NASSCOM stated, "There is increasing competition from Philippines, China, LATAM; protectionist noises are rising and visa issues make business doing difficult. Acknowledging the difficulties that exist, Rangachary Committee (was) constituted... Detailed deliberations on issues, most of which are related to aggressive interpretations by assessing officers leading to litigation, have now been addressed through a CBDT (Central Board of Direct Taxes) clarification, although implementation is required to be monitored."

It also emphasized that a key issue yet to be addressed was transfer pricing. "(About) 35 per cent of IT exports are from global companies, which set up their centres in India and MNCs make India Global Hub and help attract companies to make investment for development centers. Safe Harbour was enacted (2009) but never implemented, global profits have been taxed."

NASSCOM also felt that royalty implications on software arising out of explanations inserted in the last Finance bill had certain unfortunate consequences, which ought to be addressed in this budget. "Retrospective liabilities and associated penalties, including disallowance of expenses. Utility services likely to be subject to royalty - like Internet downloads including sale of maintenance and ancillary services."

Rationalizing taxation of employees with specific recommendations to revisit the monetary limits for allowances, grant of LTA every year and issues related to HRA and other benefits, as there is a need to recognize the mobility of employees and how people from across the country are being employed by the sector, the industry association said.