More tax for IT Time for a reality check

Written by fe Bureau | Updated: Jan 31 2011, 06:11am hrs
An industry which always manages to surprise its customers with new innovations and its shareholders with sustained growth and profitability in spite of all the odds is used to

getting its share of surprises as well. During the last year, we have seen visa fee hikes in the US followed by the ban on outsourcing in one of the American states and a move by the British Government to mandate compensation increases for knowledge workers in the UK. The Indian government too has been reluctant to extend the tax benefits prevalent under Section 10A /10B and the Software Technology Parks of India scheme which had done so much to promote entrepreneurship and the widespread growth of the IT sector and its rise to global dominance. And the new year has started with the proverbial bang with a Rs 400 crore tax demand on one of the major companies for export of staffing services!

It is unfortunate that after 20 years of success, many people have not fully understood the contours of the industry and the composition of the projects we deliver. A typical large engagement consists of multiple phases each involving different types of expertise and varying nature of work. A case in point is a major migration project our team at Zensar did for one of the worlds biggest gaming companies to move a mainframe based global order management application to an open source environment. The requirement analysis was conducted in various offices and stocking centres of the company around the globe with a team of over a dozen consultants with both domain and technology skills, the design was done by a crack offshore team and the construction and testing done through a joint application team of client personnel, on site and offshore technology and coding experts. The final implementation went back to the original analysis team and the final cutover to the new system was accomplished on the same day on a worldwide basis.

What does one call a project like thisconsultancy, software or staffing The reality, which is the case with most large projects executed by the industry today, is that it is a combination of all three and it is literally impossible to segregate the staffing component from the project work as it is to separate the onsite work from the offshore engagement. To expect firms to deal with each of these separately would be to question the very fundamentals of a business model that has served the industry and country well and enabled a $50 billion export business creating over two million jobs to flourish. Every project this industry undertakes for prestigious overseas clients, whether executed largely on-site or off-shore adds transformational value and enhances the respect global firms have for the capability of India, the industry and every associate who works on the project and it is imperative that the Indian eco-system recognises this value addition and helps the industry to continue and enhance its services and deliver value to customers, employees and shareholders.

For the interested reader to understand the industry a little deeper, let us look at the transformation that has been achieved in the first decade of this century and the goals we have set for the next 10 years. The industry was less than $10 billion in exports at the turn of the millennium with the offshore model having taken root and in the last 10 years, the exports revenues have been multiplied five times with the focus on innovations in products, processes and global delivery models. In the next decade we expect the industry to grow at least four-fold to cross $200 billion by 2020 and in this journey, the industry will not only add significant value through the creation and deployment of intellectual property in its projects around the world, but also add significant value to other sectors like education, healthcare and government where the impact of contemporary technology enables fundamental changes in service quality and equitable access and affects the well being of large segments of the population. We also expect that the experience of many Indian firms in working on leading edge solutions for discerning customers worldwide can be customised and deployed in the Indian context and add tremendous value to all Indians.

What many of us as early pioneers and current leaders in the industry expect is an enabling eco-systemadequate private equity and venture capital to support entrepreneurs as well as growing companies, partnership with academic institutions and skill building firms to hone the talent of bright young students who enter the industry and of course local and Central government. The government has a major role to play, to provide the physical, digital and social infrastructure for the industry to deepen and widen the reach across the country and enabling tax and incentive structures to ensure that this industry continues to change the global perception of our country and lead the charge for India to become a true knowledge superpower in the years to come!

The writer is vice-chairman & MD of Zensar Technologies and is a Chairman of CIIs National Committee on IT and ITES