Budget 2015: 'Higher service tax may lead to rise in pirated software in the country', says Microsoft

The Finance Minister has presented a broad-based Budget focused on accelerating India’s inclusive growth. The Budget reiterates the major programs and initiatives that have been previously announced – Jan Dhan Yojana, Skill India, Swach Bharat, Make in India and Digital India. The Budget retains the focus on financial inclusion, education, health and agriculture. It has increased focused on infrastructure development, housing and manufacturing in India. Overall, Budget 2015 is wide in its scope and takes into account the interests of diverse sections of society – middle class, farmers, youth, aged and the disabled. It endorses a vision of India where there is a house for every family with24 hour power, potable water, and all accessible by road, and where at least one member of the family is employed. And all by 2023, when India celebrates it’s 75th year of Independence. The FM also talked about building a better social security system for it’s citizens to provide financial security. [caption id=“attachment_2128513” align=“alignleft” width=“380”]  Bhaskar Pramanik[/caption] The budget talked about financial discipline, a monetary policy framework with RBI, that will keep inflation at less than 6 percent, but look at possible double digit growth. The FM is looking at reducing the fiscal deficit to 3 percent but in three years’ time to release additional investments. The focus on infrastructure and housing investments is good, as it will kick-start the economy and have a ripple effect across all Industries. The FM understands the need to kick start infrastructure projects through increased investments, the need to revitalize PPP with the GOI taking additional risk. The focus on technology as a backbone for government processes and systems is the right approach example GSTN, JAM was stressed. Focusing on startups and MSMEs The Government has recognized the need to support startups, and incubators and has acknowledged that a culture of innovation needs to be fostered. Budgetary allocations for incubators, a mechanism for supporting self-employment and talent utilization will allow startups and MSMEs to access the funds and talent, creating new avenues for growth and employment. Boost to Digital India, Make in India and Skill India Speedy implementation of the national fiber optic network will enable more rural communities to benefit from the ecosystem of services that can make governance more effective. The trinity of Jan Dhan – Aadhar – Mobile that the Finance Minister referred to, is indeed positive in a mobile-first, cloud-first India. The Government has also shown its commitment to skill development to equip the nation’s youth to take advantage of economic opportunities. The formation of the National Skill Mission that will consolidate efforts and outcomes and budgetary allocations to financially support youth in their skilling efforts will enable the country to benefit from its demographic dividend. The focus on job creation through the Make in India program, and providing gainful employment to India’s youth is commendable and a future oriented outlook. The Finance Minister has focused on the ease of doing business in India. We look forward to policy moves in the coming year that rationalize and streamline approvals for setting up business that can help investments and boost economic development. I am positive about the reaffirmation of the Government’s commitment towards PPP as a key drive of infrastructure creation. This would provide more opportunities for innovation-led companies to partner in India’s growth. A simpler tax environment The Finance Minister has provided a firm timeline for the implementation of GST, and this will help companies effectively plan for the next year. Deferring GAAR by two years, and the fact that the Government is looking to implement its provisions prospectively from 2017, is also a welcome move. It is an indication of the GOI thinking to make tax less adversarial. The reduction in corporate tax, albeit over the next four years has certainly welcome. More because it also comes with the reduction of exemptions. Exemptions create confusion. I welcome the simpler framework the Government is proposing. There was a mention of removing SAD on components to remove the duty inversion. This can help local manufacturing of electronic goods as part of the Make for India initiative The reduction in tax on royalties for technical services will help greater technology adoption in industry and that is welcome. What was missing? We must hold the Government accountable for delivering on their budget promises.  Many of the announcements made in previous budget, which were geared to minimize/resolve transfer pricing litigation are yet to be implemented.  It is nice to make a mention of the measures for dispute resolution in the speech, but the key is implementation. We will also need to see if some of the other Tax related concerns of the IT and ITES sector have been addressed. These include resolving ambiguities in taxation of software products and services. In that context, the service tax rate going up is a concern, because of the impact it could have of driving people to use pirated software. Especially, because of the dual tax on software – the net tax rate for software is above 20 percent. (The author is chairman at Microsoft India.)