Those looking forward to a clean taxation system, with lower tax rates instead of a plethora of tax sops, will have to wait a bit more. The Rs 14,651 crore of tax incentives to software firms in what?s called the Software Technology Park of India (STPI) scheme (in the previous year, the benefits cost the exchequer Rs 12,321 crore), a newsreport in FE said, is likely to get another lease of life, though in the form of incentives on investments as opposed to those on profits right now. The rationale for this, it appears, is that since SEZ units get a tax incentive right now, denying these benefits to STPI units will be unfair! It helps that while the bigger IT firms are either located in SEZs, or are big enough to qualify to be SEZs on their own, the smaller units are found in the STPI zones. Not content with the possibility of getting a tax concession, STPI units are now arguing that the incentives should not be based on investments (under the direct tax code, existing profit-based incentives in SEZs are to be replaced with investment-linked ones) as these firms don?t invest that much?link the tax sops, they argue, to the employment created and, if you please, the innovation levels of such firms.
The move, if it does come about, will no doubt be good news for an industry where revenue growth has steadily decelerated from 32.2% in 2007-08 to 15% in 2008-09 and further to 6.3% in 2009-10, and export growth has slowed down from 16.6% in 2008-09 to 5.5% in 2009-10. Job addition has crept up only marginally from 2.2 million to 2.29 million during the period. (Most recent numbers show that software exports have picked up by 15.5% in the first quarter of 2010-11 on the back of a 8.9% decline in the corresponding period of the previous year.) From the point of view of cleaning up India?s tax regime, however, the move is regressive and the fact that units still need a tax sop suggests they haven?t been able to move up the value chain. It should also be kept in mind that the date from which the STPI tax sops would be phased out was always well known. One tax sop will always spawn another.
