Nasscom submits post-budget memorandum

MUMBAI: Nasscom today submitted its suggestions to the Finance Ministry for consideration and incorporation into the Union Budget 2007.

The industry body was unhappy over the budget presented on February 28 and the Nasscom president, Kiran Karnik, had then told CyberMedia News that it would submit a post-budget memorandum to the government.

On the issue of FBT on ESOP, the memorandum suggested ensuring equity in taxation, efficiency of mitigating multiple taxation, retention of the attractiveness in stock based compensation by keeping the cost of taxation at a moderated level and to ensure a level playing field for Indian companies as compared to MNCs in whose cases, the tax is on the employee.

To achieve this end, Nasscom said that tax on ESOP levied on the employee should be only be exercised on options granted on or after March 1, 2007. Tax should be levied at a maximum rate of 10 per cent, said the Nasscom statement.

Minimum Alternate Tax

Nasscom in the memorandum, which was also released to the media today, suggested that the levy on Minimum Alternate Tax (MAT) on Section 10A and 10B profits be deferred unless a decision to extend the tax holiday beyond 31-03-2009 is also taken simultaneously.

“Though companies in the IT/ITES sector are allowed deductions under Section 10A/10B, many of these companies are incurring income tax in foreign jurisdictions. Further these companies also are subject double levy of other taxes such as social security and insurance taxes, which are not available for tax credit in the absence of treaties. Thus, some companies in IT/ITES sector are already incurring a minimum tax much above the MAT rate of tax i.e. 11.33 per cent. The introduction of MAT has come as a setback for these companies claiming deduction under Section 10A/Section 10B,” Nasscom said.

It also said in the memorandum that levy of MAT will also affect the small and the medium companies, which do not have a visibility for sufficient profits in the near future to apply the provisions of Section 115JAA and claim credit of tax paid in the form of MAT.

Together with the social security taxes paid in foreign tax jurisdictions incurred without a set-off mechanism, levy of MAT could impair the growth of small and medium companies significantly, the memorandum said.

VC funds

The memorandum pointed out that specific businesses include information technology relating to hardware and software development. "In commercial parlance, the business of information technology would include information technology enabled services (ITES).

However, the scope of information technology business has been narrowed down to software development. Hence, it is apprehended that venture capital undertakings engaged in the business of ITES will not qualify for exemption under Section 10(23FB).’’

It said the restrictions imposed by the proposed amendment have raised concerns on the viability of investments made, as "venture capital funds have already staked large investments in ITES." The memorandum also clarified that software development will include the business of ITES.

"More generally, since it is better to leave to professionals the judgment of which sectors are promising, it would be better to have a ‛negative list’ to take care of any concerns of the government, rather than a ‛positive list’ for venture funding."

© CyberMedia News