FBT Removal, MAT Hike will Have No Impact

by UTVi Desk    Jul 08, 2009

Sudhakar Ram, MD of Mastek, and Carl Saldhana, CFO of First Source Solutions, believe that the budget has been fairly favorable for the IT sector. They say the FBT removal and MAT hike will not have much of an impact on the IT industry.

There has been an extension of STPI by a year and there has been an abolition of FBT and an increase in MAT. How would you break down both for your companies and the industry at large?

Ram: I think they are positive for Mastek as well as the industry. As a whole, FBT didn’t have too much of an impact in terms of Mastek, because the key part has been passed on to employees. From an administrative perspective, it is definitely a relief for our finance function. The extension of STPI by a year was very welcome, given the fact that we had a downturn. A one year extension is welcome and it is helping both Mastek as well as the industry. In terms of MAT, I think it is more of a cash flow issue, given that the actual carry forward is allowed for 10 years. Most of us would be back into the tax bracket in that period of time. So, it’s a cash issue and most of the IT companies don’t have a cash flow problem. They are fairly liquid and they have good balance sheet as Mastek. So, overall, the budget has been pretty good for the IT industry.

Gartner reports that global IT spending has been down by as much as 6%. What is your own experience on clients? Are they still aggressively cutting IT budgets?

Saldhana: Well, it’s a mixed bag. I should say there are pockets where people ask for some price reduction. Generally, we have not seen that. So, basically we haven’t see too much of an impact. Therefore, we are pretty positive.

If you were to asses the overall micro environment right now, do you feel enough has been done in Budget 2009? Could there have been any further step in taxation or perhaps in creating business opportunities?

Ram: I think, overall, the budget can only do so much. I think the finance minister has done a fairly good job. The large IT programmes which the government of India is taking up could give a fillip to the industry as a whole. Even at Mastek, 40% of our business comes from the public sector. So, we would enhance our focus on India and I see that as a very positive outcome from an India perspective.

Could the budget have done something for the BPO industry or perhaps to the labour-intensive side?

Saldhana: Yes, we were actually expecting that. One of the recommendations we have made was to employ a hell lot of people. We were even expecting tax benefits. For example, in the domestic sector, we employ about 11,000 people. In Tier II cities, there should be some benefits, going forward. We get tax benefits when we are exporting out services. Our domestic services don’t get any tax benefits. So, that is one big thing we are trying to get. Hopefully, over a period of time, we will persuade people to do that.