Extend Tax Relief to IT: JP Morgan

by UTVi Desk    Jul 02, 2009

Bhavin Shah, JP Morgan spoke to UTVi about IT industry’s expectations from the budget. According to Shah, the industry is plagued with some issues on the taxation front and pending their resolution, the growth trajectory would be muted.

Excerpts from the talk:

What is your view on SEZ taxation?

Shah: Well taxation of SEZ is not simple. The formula provided in section 10AA of the I-T Act for computation of deduction available to SEZ units, in most cases, 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 so as to avoid unnecessary litigation.

Do you think the IT sector as a whole requires a greater tax shelter?

Shah: I don’t think the large IT companies necessarily need large tax shelter. They are very profitable. They have very healthy margins. Certainly, for smaller companies, the extension of STP benefits is probably for a while. There are other things that the IT companies might be expecting. IT companies have to pay service tax on the services they buy. However, since they are into export, those taxes are not refundable by the government. However, there seem to be some issues in getting those funds.

So IT companies would expect that process to be simplified and also there is FBT which has become a substantial part of the government tax collection. I think IT companies and even other companies might expect that if the government wants to keep the revenue base, it can simply increase the tax surcharge. Having FBT leads to lot of extra work in terms of calculating and collecting the tax…

How much of the cost burden for IT companies will reduce if changes happen in FBT and consequently what could be the direct implications be as a consequence?

Shah: I don’t think the companies can realistically expect FBT to be abolished without a corresponding tax increase. So I would not count on any real significant benefit to the IT companies because it is more of a simplification in procedure rather than reduction in taxability.