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"Removal of FBT should be Considered"|
- By CXOtoday Staff, Jul 03, 2009 1819 hrs IST
- Tags : Budget 2009, IT, ITeS
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Himanshu Parekh, executive director (tax and regulatory services) at PricewaterhouseCoopers, speaks on the expectations from the Union Budget 2009-10, including STPI, tax anomalies, and issues related to computation of tax deduction in the IT/ITeS sector.
Pranab Mukherjee had admitted in the VOA that the global economic scenario is not very encouraging. Considering this, and coupled with the regular Obama rhetoric against India, what should be the incentives the IT sector is expecting from the new FM?
Considering the current downturn in the global economy and Barak Obama's backlash against outsourcing by US companies, the need of the hour is for the government to provide a strong impetus to the Indian IT/ITES sector. In particular, on the income tax front, the industry is clamoring for an extension of the tax holiday available to STP units/EOUs, abolition of MAT on book profits of STP units/EOUs, and elimination of the FBT regime.
The industry has for long demanding extension of STPI? It has been promised in principle. Do you think that a year's extension is enough?
With the overall slowdown in the worldwide economy, the business and margins of the IT/ITES industry are under immense strain. Further, with competition from other emerging economies such as China, Philippines, etc, the Indian IT/ITES sector would suffer competitively if the tax holiday expires in March 2010. While large players have been able to avail the benefits of the SEZ scheme, the medium/small players have been unable to do so, considering their size & the type of investments required for establishing units in SEZs. Considering all these factors, the tax holiday to STP units/ EOUs should be extended by at least 5 years.
What exactly are your expectations from the finance minister?
Some of the general expectations from the union budget 2009-10 include:
* Reduction of income tax rates, which may be achieved by waiving surcharge and education cess. Further, the corporate income tax rate should be reduced from 30%, which compares unfavourably with other Asian countries such as 25% in China, 16.5% in Hong Kong, and 18% in Singapore. It has been observed in the past that reduction in tax rates increases the overall tax collection of the government.
* Providing investment allowance/higher depreciation for new investments made by the Industry.
* Elimination of Securities Transaction Tax levied on transactions in the stock exchange;
* There should be increased tax incentives for people to make investments in savings schemes, fixed deposits, etc. The current limit of Rs. 1 lakh should be enhanced to Rs. 2 lakh.
* Enhancement in tax break limit on interest on housing loans from Rs. 1.5 lakh to Rs. 2.5 lakh.
* Reduction in the procedural compliances which have increased multiple-fold in the last few years. The number of various due dates under various legislations should be streamlined to reduce the compliance burden on the taxpayers.
* There is also a need to ensure quick disposal of tax cases by Appellate Authorities/Courts in India. As of now, there are more than 70,000 cases pending before the ITAT alone. This can be achieved by setting up additional benches of tribunal & court rooms.
Which other changes in regulation do you think can the government make that will help the IT-ITeS industry?
The IT/ ITES industry is plagued with various tax issues which need to be addressed on a priority basis. Some of the key income tax issues are as under:
Removal of anomaly in the formula prescribed in section 10AA - The formula provided in section 10AA of the Act for computation of deduction available to SEZ units is as follows :- Profits of undertaking x Export turnover of 'undertaking' / Total turnover of 'assessee'.
In case of taxpayers having units outside the SEZ also, this would result in the profits of the SEZ unit not being entitled to the 100% tax holiday as was promised at the time of introduction of the SEZ regime. The government needs to address this anomaly in law so as to avoid unnecessary litigation.
* Fringe Benefit Tax (FBT) - Considering the major compliance burden cast by FBT on taxpayers and also considering the meager revenues which FBT contributes to the exchequer, the FBT regime could be given a burial, especially for the IT/ITES industry and in particular for FBT on ESOPs. Further, the benefit of lower FBT on conveyance and hotel expenses available to the IT industry needs to be extended to the ITES industry also.
* Issues in computation of tax deduction - There are several interpretational issues in the computation of tax deduction for STP units/ EOUs, such as set-off of losses of other units against STP unit, set-off of brought forward losses, etc; exclusion of certain items from total turnover which are required to be excluded from 'Export Turnover'; eligibility of tax deduction on interest income / foreign exchange gains; availability of tax deduction to units post slump sale thereof, etc.
* The need of the hour is to clear the mist surrounding the above issues by way of suitable amendments / clarifications in the Budget. This will result in providing much needed certainty to the industry and mitigate the ongoing litigation on these issues.
Related links:
Extend Tax Relief to IT: JP Morgan
'Budget Should Bring Uniform Taxation'
IT industry in Need of Concessions : Vishnu Dusad
'ESOPs
Should be Made More Attractive'
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