Budget 2007: IT Industry Speaks

Navinder Chauhan, Head, Marcom RPtech, India:

We don’t see any real change or benefit from this budget with concern to our business. The FM has decreased the peak rate of the import duty from 12.5 percent to 10 percent. But the Educational Cess has been raised from 2 to 3 percent …so in essence we have a neutral reaction to this budget.

Sudhir Agarwal, director, sales, Motorola,- India, Nepal, Sri Lanka, Mobile devices:

We were expecting a lot of changes for the mobile handset manufacturing industry, but the budget has disappointed us. Firstly, we wanted the SGR liscensing to be delinked, or at least redefined, but that did not happen. Secondly, we were hoping for rationalization on customs duty for mobile handset accessories like Bluetooth headsets etc, which is currently as high as 35%. The government has not addressed any of these issues and in fact, the mobile handset industry as a whole, did not get substantial attention. For consumers, this will mean no change in prices of handsets, because the cost of manufacture and import remains the same for us.

Raj Saraf, CEO, Zenith Computers:

There is no change in the IT hardware Industry, so prices remain the same. We had not expected any changes, in fact, we had recommended that no changes be made. We are happy with the budget.

Infosys CFO, V Balakrishnan:

Infosys CFO V Balakrishnan said that the impact would be substantial for the industry, but a little less for his company as it pays slightly higher tax overseas (read the US) and enjoys double taxation credit. The net impact for Infosys therefore would be 1.5 % of its total net income.

i-flex Solutions CEO, Deepak Ghaisas:

According to Deepak Ghaisas, CEO, i-flex Solutions, “This is totally negative for the software sector since none of our issues have been addressed. He did not say anything about the continuation of STPI scheme nor was there anything concrete on SEZs. On the other hand, he has extended MAT to IT companies. They have also imposed a 1 per cent education cess.”

TCS:

A spokesperson of TCS, said MAT extension to the IT industry would mean big erosion in profitability of the company.

Nucleus Software MD, Vishnu Dusad:

According to Nucleus Software managing director Vishnu Dusad, “It would have been better if the government had looked at the positive benefits of higher personal income tax from the IT professionals, rather than trying to erode our margins so seriously.”

Netaquila Solutions VP, Ankur Rohatgi:

Ankur Rohatgi, vice-president of Delhi-based software solutions firm Netaquila Solutions said, “This is quite serious. We will have to re-evaluate our pricing with our clients. And if we can’t recover MAT from our clients, we won’t be able to continue. Our margins and that of smaller companies are so very low.”

The IT industry’s ESOPs have also been brought under the fringe benefit tax (FBT) audit.

“FBT on ESOPs is in any case mindless in my opinion. An executive going on a business trip also comes under FBT. Where is the fringe in that? Besides, ESOPs have in any case failed. People get equity, but not options. Most companies have moved away from the options scenario due to the volatile stock markets,” added Rohtagi.

Oracle India Managing Director, Krishan Dhawan:

Given the positive growth trajectory rate, there was no need for a dramatic change in the budget. It is good to see the fiscal deficit under control. I would first like to congratulate the Finance Minister for boosting the share of education and healthcare, both essential for overall development. Education, as I have often said, needs greater attention, as this is where the future lies. Proper training and skill sets need to be imparted to our youth if India is to attain and maintain top rank in the global digital economy.

There is continued interest in supporting e-governance initiatives. The increased budget allocation for e-governance at the center and state levels is a step in the right direction.

Also targeted funds allocated for computerization of the Public Distribution System can aide in enhancing the country’s food supply chain to ensure the supplies reach where they are most needed.

Infosys Board Member, TV Mohandas Pai:

TV Mohandas Pai, board member of Infosys, said, “Personally I think it is a mixed budget. Government has not taken any bold initiative, very unkind to corporate sector. Budget gave more emphasis on the social sector.”

Wipro COO Suresh Senapaty:

Wipro COO Suresh Senapaty considered the tax proposed on Indian software services exporters was a retrograde step and demanded it to be scrapped.

EMC India and SAARC, President, Manoj Chugh:

“The focus on e-governance, education infrastructure development and innovation through higher budgetary allocations is a positive signal for the technology sector. These steps will provide further impetus to Information infrastructure and technology spend in the country as well as augment talent creation in the IT Services industry, thus supporting its long term growth. The spotlight on R&D in the technology sector will help drive IP innovation in the country,” remarked Manoj Chugh, president, EMC, India and SAARC.

Aspire Systems CEO, Gowri Shankar Subramanian:

“The corporate sector has nothing major to cheer about—what with the increase in dividend distribution taxes and ESOPs coming under the FBT net,” feels Gowri Shankar Subramanian, CEO, Aspire Systems.

“Specifically, for the software industry, there is no mention on the status of the 10A exemption beyond 2009. Also, infrastructure—one of the burning needs of the hour—has been shortchanged with no major initiatives,” he said.

LG Electronic India Managing Director, Moon B. Shin:

Moon B. Shin, managing director of LG Electronics India, said the Budget 2007 was not very favourable to domestic industry and trade. Also increase in education cess from 2% to 3% would prove to be an additional burden to the common man and corporate alike.

“The budget has not provided any incentive for exports acting as a hurdle in India emerging as an export hub. No sops have been announced to curtail the effect of the inverted duty structure,” he said.

Juniper Networks India MD, N Venkaswamy:

“I’m happy to see some of the long term decisions that were made as part of the budget. However there is also a need to make decisions that affect the short term. Power and electricity is one thing, but there is also a need to look at the overall infrastructure such as highways, roads, etc. With regards to Juniper, our focus is networking. I’m happy about the e-governance programme, and this is a place where Juniper comes into play, so this is good for us,” observed N Venkaswamy , MD, Juniper Networks India.

CA India and SAARC Managing Director, Ninad Karpe:

Budget 2007-08 is more focused towards agriculture, healthcare and education however this budget has given e-governance its due diligence.

State governments across the country have realized the benefits e-governance has to offer. Currently India is on road to enable efficient governing processes, with the Central Government’s support of additional Rs. 200 crore. This clearly gives a boost to e-governance initiatives across the country. This spend will not only improve services to the citizens but create a ripple effect in the domestic IT industry and may lead to mushrooming of the domestic IT spend. Also, the proposed Rs. 33 crore for a new scheme of manpower development for the software export industry is a definite positive for the IT services industry.

Hexaware Technologies Ltd Executive Chairman, Atul Nishar:

There are four IT industry implications in this budget:

• MAT being extended to IT companies – This was a bit of a surprise for us. Especially when the IT sector was given a tax exemption assurance till 2009, MAT inclusion has come in early. However, I believe this to be a silver lining for it will only build a stronger case for IT and BPO companies to extend the STPI scheme. Having said that, I feel that MAT impact on IT companies will be anywhere from 0% to 11.33%. Large companies that have foreign branches will not be significantly impacted by this since they pay tax abroad which is available as credit due to the double-taxation treaty. However smaller companies would feel the impact.
• Service Tax on leased and rental properties – this I believe is improper since IT and BPOs need large spaces. I feel Development centers should be excluded from this.
• Inclusion of ESOPs in FBT – Ideally, this measure should follow international norm of ‘withholding tax’.
• Pass-through for VCs limited to only six sectors – Though, software and hardware have been included in this measure, BPO has been missed out. Considering almost 70% of the VC investments in IT and ITeS sector are made in BPO, this will hurt the BPO industry significantly. Perhaps, this is a minor slip-up which may get rectified in the few days.

However, the substantial increase in Education outlay as also for ITIs and E-Governance will certainly help the IT industry as also the nation in the long run.

While the budget stands for stability and continuity of sound policies, for the IT industry I would rate it 5 on 10.

Samsung Telecommunications India:

Our request to simplify duties on telecom sector has been addressed. FM’s request to Department of Telecommunications for unified tax structure is a positive step. Presently, the sector is suffering from the problem of multiaxing like service tax, license fee, spectrum charges, asset deficit charges, and education cess. Such a tax system was adversely affecting the elecom growth.

This budget will also benefit the growth of rural telephony. FM’s announcement for allocating 4000 crore for rural road and increase in agricultural investment to upto 2% of the GDP will improve the rural infrastructure and increase the individual purchasing power, thus increasing the rural phone penetration level.

Development and supply of content for use in telecom and advertising have been bought under the Service Tax rate. This will only dampen the growth of VAS which is key revenue earner for the telecom sector. Advertising being the key marketing tool will become costlier and thus will affect this industry badly. In such price sensitive market FM should have been more sensitive to the industry. Apart from this additional burden of 1 percent additional Cess is also a disappointing move.