BUDGET: IT Sector Left Unimpressed

The information technology (IT) sector is disappointed at Finance Minister Pranab Mukherjee’s union budget for 2011-12 for not extending tax incentives and hiking the Minimum Alternate Tax (MAT).
The IT sector in Hyderabad, a key IT hub in the country, feels the finance minister failed to meet its expectations, especially on the demand to continue tax incentives to small and medium enterprises under the Software Technology Parks of India (STPI) scheme.

B.V. Mohan Reddy, head of IT sector committee of the Confederation of Indian Industry (CII), Andhra Pradesh chapter, told reporters that medium and small businesses were put at a disadvantage by Mukherjee’s silence on extending tax benefits. “We had given a number of representations to the finance minister but we feel that he has not met our expectations. We wanted Sections 10A and 10B to be extended one more year, at least for small and medium businesses,” he said.

Reddy, who is also the chairman and managing director of Infotech Enterprises, said after the direct tax code (DTC) comes into effect April 1, 2012, the direct benefits will automatically disappear. “The finance minister was silent about it, which made us believe this particular tax incentive 10A and 10B will no longer be applicable and this has put small and medium businesses into a disadvantageous position,” he said.

More from Biztech

Future Group - Reliance Retail Deal approved by CCI RBI ban on cryptocurrencies takes effect; prohibition could force investors to tap the black market

The IT and IT-enabled services (ITeS) sectors also criticised the hike in MAT from 18 to 18.5 percent. Reddy said that since the MAT was also applicable to all special economic zone (SEZ) units, the hike was a disadvantage for them. The sector had already put forward its argument before the finance minister that globally the MAT was not more than one-third of the corporate taxation.

“Even assuming that corporation tax is at 34 percent or 34.5 percent, we believe that MAT should not have been more than 10 or 11 percent,” Reddy said.

The sector had also sought some clarity on agreements with various countries for avoidance of double taxation, and feels these expectations have not been met.