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STPI scheme: SMEs have different views

CHENNAI: The Software Technology Parks of India (STPI) scheme, a 10-year tax-holiday for information technology companies, which originally ended in March 2009 and extended for a year till March 2010, has now been given another one year extension till March 2011.

The industry body National Association of Software and Service Companies, which had been lobbying for this extension, feels that this benefit has come in at a time when IT companies are facing the pressure of a slowdown in the U.S. and the U.K. markets, which jointly account for close to 90 per cent of their revenues. The industry had demanded a tax break during this period rather than at any other time in the recent past. The industry felt that with the downturn, the companies were forced to cut IT spending and if the extension was not given it would have a negative impact.

Though Nasscom had asked for a five-year extension of the STPI scheme, in the current budget, extension had been given for one year. This gesture was considered good for the growth of the sector, but many small and medium enterprises (both STPI registered and non-STPI registered) had different views. However, K. Thirugnanam, Founder and Chief Executive Officer, Ascenders Technologies, told The Hindu that he was optimistic that the present Government would extend STPI for a few more years.

This, he said, would help more IT SMEs to enter and register in the STPI scheme. However, Sarada Ramani, Chief Executive Officer, C1 India, said that it would become an ordeal every year as many of the SMEs would have to adopt a wait and watch approach.

Mr. Thirugnanam said those companies registered under STPI would get the benefit of 10-12 per cent savings on the profit after tax. Similarly, other benefits would be security, listing company names in the STPI directory and other tax sops. He felt that mere extension of the scheme would not benefit the SMEs entirely.

It was evident that all small and medium companies registered under STPI were not enjoying all the benefits that were enjoyed by the big players.

He said the Government should look into the pricing aspects of the IT industry. As most of the SMEs were forced to compete with large players and these large players were looking more at volume-based business than the value-based business, it was difficult to meet the requirements of the clients and compete with large players. Mr. Gowari Shankar Subramanian, Chief Executive Officer, Aspire Systems, said the extension of STPI scheme would not help long-term planning in any way. From the small and medium enterprises’ perspective, they were simply working with the assumption that tax exemptions for the IT sector would become non-existent sometime soon.

However, as the extension of tax holiday scheme was expected to be positive, a longer term view would have given a better impetus to the industry.

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