Why Budget 2012 is likely to be a non-event for IT sector

The one percent gain by the IT sector in the last one month more or less reflects the subdued sentiment that the sector expects from the budget. The IT sector, the bellwether of the Indian economy, is more concerned with uncertainties like the crisis in Europe and increasing debt ceiling in the USA, which has clouded the outlook for the sector as clients delay their decision making plans.

[caption id=“attachment_240984” align=“alignleft” width=“380” caption=“here is expected to be clarity on taxation of on-site income for the IT sector. Reuters”]  [/caption]

In fact the December quarter was an indication of this as companies like Infosys are expecting ‘zero growth’. While the industry has asked for the abolition of / reduction in rates of MAT on SEZs, Kotak believes that the government will not fulfill this demand.

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Instead it expects the government to focus on enabling issues like promoting higher technical education, promoting better infrastructure facilities in Tier 2 cities and other related issues like skills development.

IT companies are keenly looking at the Union Budget 2012 for four main points

•MAT on SEZs - while the industry would like to abolish or reduce the Minimum Alternative Tax on Special Economic Zones (SEZs), the likelihood of this getting announced in the budget is almost nil, says Angel Broking.

•New incentive schemes - the industry wants new schemes based on location (Tier 2-3 cities) and employment (SMEs). However, this seems unlikely as per Kotak as the SEZ scheme is already in place and the government may not be in favor of granting location-based incentives prior to GST introduction.

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However, the following seem likely.

•Service tax refunds - simplification of refund process in case of adequate set-offs is likely as this could lead to faster refunds and better compliance.

•Taxation of on-site income - there is expected to be clarity on taxation of on-site income.

Overall, expect the Union Budget 2012-13 to be a non-event for the Indian IT sector.