Service Tax Hike To Put Pressure On Enterprise IT Spend

A budget that fails to excite was perhaps the last thing that India Inc. needed at a time of marred economic growth sentiment. While it’s not too bad to be average and play safe, but then don’t expect a thumbs up, is a message that has been clearly conveyed by most businesses across sectors, and more so by the IT industry that feels sorely ignored. Not forgetting that this was the year when the Finance Minister could have taken some bold initiatives because assembly elections are over and general elections are two years away.

This is also reflected in the sentiments expressed by the Indian CIO community. Whether on the personal front or the impact on IT within their enterprises, the dominating reaction is one of disappointment over a lukewarm budget.

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According to Kamal Karnatak, Group CIO for RJ Corp, from an overall perspective the budget has not done much and there is nothing exciting about this budget. “This is neither a populist budget nor a pro-reform budget. It is a safe budget. It does not talk of any structural reforms or of any major policy changes. It’s a kind of status quo budget and may be political compulsion, after FDI in retail and railway budget, were playing in the mind of FM.”

Service Tax Dampener: Spend More On IT Services

The increase in Service Tax from 10% to 12% has emerged as a key area of contention for the CIO community at large. As the consumers of these services, the CIOs will have a tough time battling the increase in costs as the IT services they use get dearer. According to Anoop Handa, EVP and CIO, Fullerton India, this hike will lead to an overall climb in the cost of procuring IT services and will have a stress on the IT budget.

“The increase in service tax will have an adverse impact on IT consumption for the enterprises. As users of those services, the CIOs will either need to increase their IT budgets or optimize their spend on these services,” states Daya Prakash, CIO, LG Electronics, For CIOs who are already struggling with tight IT budgets this move is likely to put further pressure on their internal IT budgets.

Prakash, who terms the budget as disappointing, further states that typically on an average the IT services component, which includes like technical and maintenance services, etc. can comprise of approximately 20-30% of the total IT component for an enterprise. This means that this 20-30% component of enterprise’s IT will be impacted by the increase in service tax.

Personal Tax Reforms Leave CIOs Unimpressed

On the personal front, a mere Rs. 20,000 increase in the tax slab was rather disappointing for the Indian CIOs, who were expecting a more significant increase in the personal tax slab. Further, whatever was to be gained from this will be nullified by the increase in excise duty, which will up inflation rates.

“I was expecting some breather on the personal front, but the budget has been disappointing,” explains Prakash. Karnatak further points out that on the individual front the Income tax slabs are not tinkered much, so it does not help in reducing the substantial tax burden of salaried people.

Sanjeev Kumar, Group CIO and Group President – Business Excellence for Adhunik Group Of Industries, feels that there is nothing positive, ambitious and visionary in the budget. “It is more of a politically right kind with a missing substance. A slight lure in one hand is getting snatched by another. Typically like a cashier of a bank can’t feel rich by counting denomination of currencies daily as part of his job, a common man - particularly salaried ones - will get a little as tax relief but the joy will turn to despair the moment he will come out to manage daily family chores,” he adds.

With inputs from Abhishek Raval.