The Hindu : Andhra Pradesh / Hyderabad News : IT advisor allays concerns of software industry

Online edition of India's National Newspaper
Monday, Nov 05, 2007
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Andhra Pradesh

Andhra Pradesh - Hyderabad

IT advisor allays concerns of software industry

‘Increase in productivity can help withstand dollar decline’
Valued at Rs. 48 a couple of years ago, dollar has dropped to Rs. 39 at present

HYDERABAD: The State government appears to be in a dilemma over bringing some of the services of the Information Technology sector under the tax net.

On the lines of other States like Karnataka, the government has initially explored options for taxing some services including exports. A team of IT and commercial taxes department was constituted to study the issue a few months back.

“A section of the industry is in favour of levying taxes on some services. But, they constitute a minority,” IT advisor to the government C.S. Rao said.

Speaking to The Hindu, he said while the multinational companies with large turnovers are not averse to taxes, small and medium-scale industries are opposing the process. The small companies are in fact seeking an extension of the Sunset scheme of the Software Technology Parks of India that is set to expire in 2009. On the concerns of the industry over appreciation of the rupee versus US dollar, he said the companies could overcome the problem by improving productivity of employees to withstand the impact.

This could be in the form of increasing the number of hours that would, in turn, enable increased output. “High salaries offered by the IT firms and ‘very high overheads’ in off-shore operations are sure to affect the profitability of these companies,” he said.

The steep increase in rupee value is likely to bring down profit margins of the IT companies significantly over the coming days.

Valued at Rs. 48 a couple of years ago, dollar has dropped to Rs. 39 at present and is likely to fall further to less than Rs. 35 owing to the concerns that are hitting the US economy.

This will result in the companies spending more dollars even without increasing the salaries of their staff. Coupled with other overheads, this will, in turn, have an impact on the profit margins of the firms.

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