Budget 2006: No Good For IT Industry

by CXOtoday Staff    Mar 03, 2006

The voices of dissent just won’t stop as far as the Indian software industry and the Union Budget 2006 are concerned. Business Software Alliance (BSA) has announced that the eight percent excise duty on packaged software and 12% hike in the service tax are bound to have a negative impact on the growth of the Indian software industry.

According to BSA, increased software costs will hurt the fight against piracy, which in turn will have an adverse impact on the economy.

Ajay Advani, Co-chair of BSA India said, “Software is the driving force behind growth in the IT sector. Reducing the rate of software piracy can boost the economy and create new jobs and business opportunities that generate spending and new tax revenues. With the right policy choices, a new area of innovation, growth, and opportunity can spread across the country.”

A recent IDC study suggested that a reduction in the software piracy by 10 points could have a significant impact on India’s economy and could add 115,847 jobs, contribute $5.9 billion to GDP, $386 million in taxes and $8.2 billion in revenues to local vendors.

The budget hasn’t gone down well NASSCOM either, and the premier trade body and ‘voice’ of the IT software and service industry in India has also expressed concerns about the increase in levies on packaged software and on IT hardware.

Commenting on the adverse implications of the Union Budget, Kiran Karnik, President, NASSCOM said, “Increase in levies on packaged software and on IT hardware will result in higher prices and have an adverse impact on millions of customers and on the domestic IT market. It will be a setback to efforts to promote IT utilization in the Indian economy and for vital applications like education and health.”

Karnik is of the opinion that increase in service tax and broadening the net to cover previously excluded IT-related services will not only raise costs, but also act as a deterrent to outsourcing work to SMEs.