BUDGET: Reactions From The IT Industry

This is what the IT industry had to say about the Union Budget 2011.

Keshav R. Murugesh, Group CEO, WNS Global Services- “We are sorely disappointed that there was no mention of extension in the tax benefits under the Software Technology Parks of India (STPI) scheme. This will be a dampener for the USD 60 billion Indian IT/BPO industry that contributes nearly 5% of the country’s GDP. We had hoped that the sunset of the STPI scheme would be extended to coincide with the introduction of the new DTC from April 1, 2012. Currently we need both direct and indirect support from the government to maintain ’the India advantage’ as a global BPO destination. It is important to note that in countries like China and Philippines, the IT/BPO industry is enjoying support from their governments on tax benefits and policies and they can pose a great challenge to the Indian IT/ITeS industry in the years to come.”

Vilas Kanyal, Head, Asia Pacific, Mastek- “We welcome the announcement by Hon. Finance Minister for Goods and Services Tax (GST) roll-out from April 1, 2012. The Technical Advisory Group (TAG) constituted after last year’s budget had proposed a GST Network (GSTN) for managing IT systems including the common GST portal. The existing tax administration systems of the central and state departments will be integrated with this portal thereby providing a seamless system interaction for the users and stakeholders. The common infrastructure and service platform will unify the revenue consolidation process of the Government departments at both state and central levels. As mentioned by the Hon. Minister several states have already been working to establish the key business processes and render e-services to the citizens.”

Ravi Vishwanath, Tax Partner, Ernst & Young- “While the Budget overall seems to be pragmatic and well balanced, it seems to be a mixed bag for the IT Industry. Increased focus on e-governance and consequent opportunities will be welcomed by the Indian IT/ ITES industry. Reduction in the current surcharge rate for domestic companies (from 7.5 percent to 5 percent), coupled with an intention to phase it out altogether, is also a step in the right direction. Industry IT players with global footprint/ subsidiaries could also seek to benefit from the concessional 15% tax rate, on dividend remittances from their foreign subsidiaries. On the flip side though, the absence of any extension of the tax holiday under the Software Technology Park Scheme (particularly for the small and mid-tier IT players), proves to be a dampener. Also, the levy of Minimum Alternate Taxes on Special Economic Zone (SEZ) Developers, as well as existing SEZ Units (at an increased rate of 18.5 percent of book profits, such SEZ units being hitherto tax exempt), is a setback for the industry which has been keenly looking at expansion opportunities in SEZs.”

He adds, “On the indirect tax front, the Budget does not seem to have addressed some of the key concerns of the IT industry in entirety. While simplified procedures for service tax refunds by SEZ units, and a new scheme for exporter of ‘goods’ have been announced, the challenges currently being faced by IT ‘service exporters’ have not been addressed. Further, the demand for clarity on taxation of packaged software has only been partially dealt with, by providing for an exemption from excise and customs duty, on the value of licenses for packaged software without MRP. The industry though was seeking comprehensive clarity under various statutes, on the over-lapping tax treatment on supply of ‘packaged software’, vis-à-vis ’licenses’ for packaged software. The industry has also been extended some relief in the form of customs and excise duty reductions on components of printers and DVD/ CD drives.

Adding further, “At a tax Policy level, the Finance Minister has expressed his continued commitment to introduce the Direct Tax Code from 1 April 2012 and take forward the GST roadmap (by seeking to introduce the necessary constitutional amendments, model GST statute/ rules, etc). This reiteration is welcome. To sum up, the Budget continues to focus on growth, along with fiscal consolidation and stability as its key themes. The IT Industry though would believe that this Budget could have delivered more, particularly on the tax holiday extension, though this must be viewed in the context of the Government’s stated policy of convergence with DTC proposals, and consequent phase-out of most tax incentives.”
Hanuman Tripathi, Group Managing Director, Infrasoft Technologies Limited
- “No extension on STPI benefits is very demoralising. SEZ units being levied with MAT 18.5% now is, going back on the commitment of keeping SEZ units tax free for some more years to come. The assumption being made that MAT will be refunded as a set-off against full tax paid at a later date implies that the Government expects IT exports to be taxed at full rate in future. For the domestic IT industry the indicators are very positive with some clear picture likely to emerge on IT budgets & planning that e-governance projects will have. The Finance Minister has said that 5 large projects of the Government namely Unique Identification Authority of India (UIDAI), Tax Information Network (TIN), National Pension Scheme (NPS) Goods & Services Tax (GST) and National Treasury Management Agency (NTMA) will be put under an IT enablement process besides there are many other initiatives announced for creating a National Knowledge Network, Providing bandwidths to Gram Panchayats etc.”
Rajesh Janey, President- India and SAARC, NetApp
- “Impressive fiscal consolidation and focus on reviving the pre-crisis growth trajectory seem to define the budget this year. The forecasted growth rate of 9% indicates an optimistic outlook and the objective clearly is to pave the way for building a transparent and result oriented economic regime. It is inspiring to see that concrete measures have been taken to strengthen the social and financial inclusion agenda. Providing rural broadband connectivity and increasing the reach of banking facilities will provide a strong impetus to this mission. The growing role of technology outlined, in improving Governance will fasten the pace of opportunities for players like us in the technology space. The dynamism we see due to scaled up flow of resources (including the intended generation of 10 lakh Aadhaar numbers from October 2011) to rural India will prove to be significant.”
Naresh Wadhwa, President and Country Manager– Cisco, India and SAARC
- “The budget this year provides a number of measures to promote inclusive growth, which in my opinion is crucial to sustain India’s development ambitions. The emphasis on rural development, both through banking and telephony initiatives, is very welcome. I’m particularly thrilled about the allocation announced for rural telephony as this will surely give a fillip to boosting connectivity for villages.”

He adds, “The budget also has a number of initiatives to take banking to the masses. Among them, the move to set up banks in villages of more than 2000 people, the bill to allow RBI to grant more banking licenses and additional support to NABARD are particularly noteworthy. On the downside, we would have liked to see infrastructure status being given to rural healthcare initiatives as well, as they play a key role in promoting inclusive growth. On the overall industry front, there are a few initiatives such as treaties to avoid double taxation and reduction in corporate surcharge which will help in promoting growth.”
Jeya Kumar, Chief Executive Officer, Patni Computer Systems
- “The Union Budget lays specific emphasis on controlling fiscal deficit and accounts for adequate intervention from the RBI to curb issues of rising inflation. Sectors such as Agriculture, Infrastructure have been appropriately addressed in the budget but there isn’t as much focus on the Information Technology industry. We believe that the inclusion of SEZs under MAT will reduce the productivity of companies, especially in the small and medium sectors which form a major chunk of the IT industry. While the increase of MAT from 18%-18.5% is notable, it will not have drastic implications among companies. Although new services are included for Service Tax increasing the input costs, the efforts to streamline and simplify the refund mechanism is a welcome step. The much awaited clarification regarding taxation of Licensed Software has not come, which is disappointing. Another welcome proposal is the reduction of tax on Foreign Dividends to 15%. This may increase the fund repatriation to the Parent companies in India.”

He further adds, “Even though the budget does not mention any extension of the STPI scheme, we hope that the proposed Direct Tax code expected to be enforced in April 2012 will provide succour to the industry for its growth. We would also like to welcome the Finance Minister’s consideration of reducing the corporate surcharge by 2.5%, which we believe will have a positive impact on the profitability of most companies. By enabling rural India to harness broadband internet, the Finance Minister has also provided a fillip towards the cause of penetrating internet to the grassroots of the country.”
NASSCOM
- the trade body and the chamber of commerce of the IT-BPO industries in India, also expressed its disappointment on the Union Budget Proposals 2011-12 that chartered a roadmap on sustaining a high growth trajectory for the country, but missed the relevant thrust for business to enable this growth.

On the positive side, there were certain policy announcements related to service tax refunds and transfer pricing aimed at simplification and reducing litigation. It is important that the implementation framework and clarity on applicability is announced on these schemes, so that a clearer policy framework can emerge. NASSCOM hopes the Finance Ministry would review every three months the implementation of the new provisions announced.

Skills development, infrastructure, innovation and social development, it concludes, were other welcome highlights in the budget that would enhance India’s long-term competitiveness.