The Hindu : Karnataka News : IT industry welcomes budget proposals

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Tuesday, Jul 07, 2009
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Karnataka

Karnataka

IT industry welcomes budget proposals

Staff Reporter

BANGALORE: Information Technology companies, which were looking to the budget to stimulate growth during this gloomy economic period, have welcomed the extension of the sunset clause for the tax holiday given under the Software Technology Parks of India (STPI) scheme. Further, exemption of “value attributable to transfer of the right to use packaged software” from excise duty and countervailing duty (CVD), a long-pending demand of the software industry, is touted as one that will bring relief to the beleaguered industry.

The budget proposed that the tax sops (under Section 10(A) and Section 10(B) of the Income-Tax Act), scheduled to end on March 31, 2010, will be extended for a year. This, however, falls short of industry expectations — it had sought a minimum of two years extension.

The move will bring relief to mid-sized companies that cannot afford to migrate to the SEZ model, and cannot retain competitive advantage without this extension, an IT industry analyst from a leading research firm said. While leading companies have tax incidence of 10-15 per cent, mid-tier ones have a 9-15 per cent incidence.

The demand to address tax anomalies for packaged software had been raised by NASSCOM before. This refers to excise duty/ taxes on packaged/licensed software, mainly application software delivered with products or services. “This move could lead to reduction in prices of packaged software, if applied across in the market, which could be a good thing for consumers and services companies,” said Suresh Kodoor, CEO of Trizile Technology Services India. Major corporations such as Microsoft and Oracle are likely to benefit from this.

The common man of the corporate variety, which includes tens of thousands of employees in the beleaguered software sector, received the budget with some optimism. In a year where a raise in salary and incentives have plummeted, the abolition of FBT is being seen as a positive sign. “Companies are likely to increase and ESOPs may become an attractive and popular option. But it’s too soon to say,” said Madhav Das, a project head in System Sol, an ITeS firm.

Telecom

D. Shivakumar, VP and Managing Director, Nokia India, terms it an average budget as far as the telecom sector is concerned. Though the exemption from CVD is likely to ensure affordable access to mobile phones and drive telecom proliferation, the budget has “overlooked the industry’s demand to rationalise multiple taxes currently being imposed on it at both the Centre and State levels.”

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