P Chidambaram's provisions for the IT sector in yesterday's budget has left NASSCOM unimpressed and dismayed.
It is particularly unhappy about the IT industry being taxed by the Indian Government. In an official statement the industry association said, "NASSCOM is dismayed at the proposal to extend MAT on export incomes which are exempt under Sections 10A and 10B."
Declaring this as "regressive" action that could shake investor confidence in India the association said, "This is a regressive step that withdraws government s commitment to provide tax incentives till 2009, on the basis of which companies have made their business plans and investment decisions. This could affect investor confidence and growth in this sector which is not only India s biggest exporter (US$31.6 billion in 2006-07) but is the biggest employer in the organized private sector."
As a solution the association recommends that the government immediately supplement the introduction of MAT with an extension of the STPI scheme (and Section 10A, 10B benefits) by 10 years. It claims that this is the "unanimous" suggestion of the IT industry.
It also feels that the selective pass-through status for venture funds and service tax on property lease are not in the best interests of SMEs and start-ups. "Higher costs for leased space will adversely affect SMEs, which do not own office space, and reduce the competitiveness of India vis- -vis other destinations," the statement said, "The pass-through does not seem to include the BPO sector (including animation, gaming and KPO), a segment which accounts for about three-fourths of the IT sector venture funding."
It further pointed out that including employee stock options (ESOPs) in Fringe Benefit Tax (FBT) is not in keeping with international practice. NASSCOM is of the opinion that the tax should be payable by the employee only at the time of exercising the option.
It has also expressed concerns over issues like transfer pricing and the method of computation of export turnover, which it feels have not been addressed. The former is of particular significance with regard to attracting foreign investments in this sector. We hope these will be taken care of separately.
