IT firms look to full Budget for more clarity on future

Written by fe Bureau | Mumbai, New Delhi | Updated: Feb 18 2009, 03:53am hrs
The interim Budget has come across as a disappointment for most IT companies as there is no real takeaway for the sector.

The industry was expecting some clarity on the transfer pricing and service tax aspects that create a lot of confusion. We are happy that some steps have been taken on the education and infrastructure front, said Ashank Desai, founder, Mastek. He added that all hopes were on the full Budget to bring more clarity on the future of the industry.

The industry was expecting some plain-talk on the language providing tax exemption status for IT SEZ under section 10AA(7). The current wording of the section restricts the tax benefits available to IT companies operating under SEZ scheme, even though the intent of the section is to provide 100% tax exemption to companies.

We want the government to simplify multiplicity in service tax and make investor-friendly rules for transfer-pricing to help us manage the downturn. This is the time to give the message to the whole world that India is the place to do business with and business in, said Som Mittal, president of Nasscom. However, he added that there was not much disappointment as not much was expected out of this budget.

Nasscom said in a statement that there was an urgent need for removing the inequities and multiplicities of taxes and procedural issues even before the new government came in. It is important to free up the bandwidth of companies from these issues so that they are able to better manage the downturn and focus on business, it said adding that it would engage with the new government on specific policy initiatives to sustain industrys growth.

Alok Ohrie, president, EMC, India and SAARC said, This being an interim Budget, much was not expected. We were, however, very hopeful that this would set foundation for bolder initiatives in the near future. On the other hand, we would like to commend the government for its generous budgetary allocations for projects like the national knowledge network and Bharat Nirman

The industry was also expecting the extension on the STPI (Software Technology Park of India) tax holidays beyond 2010. Indias software exports, which did $40.4 billion of revenues last year, is expected to clock $47 billion revenue in the current fiscal. Apart from the reputational issues, which have arisen after the recent accounting fraud at Satyam Computer Services and the World Bank ban on three Indian IT companies, the global meltdown is hurting the margins of the companies both in terms of demand and profitability. The protectionist stance being taken by countries like the US and the UK will also adversely impact the growth prospects of the sector.

The impact of the slowdown is expected to be felt more by small and medium IT and BPO companies. With downturn in the real estate sector in India, the new SEZ capacity building could take time while the rentals for the existing SEZs are still very high and unaffordable to smaller IT and BPO companies. This could have a major impact on the expansion plans for smaller IT and BPO companies.