What IT Expects From Union Budget 2014-15

by CXOtoday News Desk    Jun 30, 2014

union budget

The $118 billion Indian information technology (IT) industry is pinning high hopes on the forthcoming Union Budget on July 10. The industry is expecting that the new BJP government at the Centre, which has put technology in the forefront, can bring measures to revive the sector while removing some of the taxation as well as other anomalies that has currently gripped the sector.

India’s IT trade body Nasscom has urged the government to set up a technology entrepreneur mission with an initial capital of Rs 500 Crore to address funding and infrastructure issues for start-up companies.

Read: IT Sector Bets Big On Modi And His Team

At present, 80 percent of the IT industry is represented by less than 200 companies, while the rest are more than 15,000 firms which are mostly medium, small and start-ups, said Nasscom President R Chandrashekhar adding that the body has suggested that a technology entrepreneur mission needs to be launched by the government on a continuous basis to look at issues related to funding and infrastructure,” Chandrashekhar says.

Globally, a lot of countries adapt this method to attract entrepreneurs and companies and many of them are also trying to attract Indian firms, he added. It is important for the government to send out a signal that it recognizes the importance of this initiative.

Read: What ICT Reforms Can New Govt Bring In India?

Meanwhile, The Manufacturers’ Association for Information Technology (MAIT), representing the hardware sector also felt that the budget should provide a major fillip to manufacturing, a segment where the country is still lagging when compared with others like China, Taiwan or Malaysia. MAIT Executive Director Anwar Shirpurwala opines that the budget should give boost to local manufacturing, early implementation of goods and service tax (GST) and credible policies to attract investments. He believes that the biggest impediment for the hardware industry has been the taxation regime that have been pleading for many years to remove some of the glaring anomalies like the inverted duty structure where it is cheaper to import a product when compared to the components. This impedes the growth of manufacturing in the country.

“Reducing the rate of duty applicable on indigenous manufacturing of laptops and tablets is a much-needed move to boost computer manufacturing in a country where manufacturing is disproportionate to demand, MAIT recommends. “The government should exempt SAD on all components used by a manufacturer of IT hardware and look into issues with regard to software licensors involved in sale of pre-packaged software,” it says.

Read: MAIT Urges Modi Govt To Stimulate IT Growth

According to Partha Iyengar, Country Manager, Gartner Research, India, from an IT industry perspective, the budget needs address areas such as infrastructure creation, an innovation-led environment and creates a niche for Indian IT in the global map.

“The IT industry has reached a point where infrastructure bottlenecks at a city and country level directly impact business growth. The industry has grown to a point where it is unable to create its own enabling infrastructure (Power, roads, connectivity, telecom quality, et al), which it has done in the past!,” he says adding that the other imperative, innovation involves creating the financial, IP protection, VC and capital markets capabilities and ecosystem to promote innovation activity in the country.

Iyengar also emphasized on creating a high performing business environment with clear, unambiguous tax laws, legal framework, transparency and speedy resolution of conflicts. Further highlighting the the H1-B issue in the US, he says the Indian government should not be apologetic about retaliating at a country to country level if unfair trade practices hinder Indian IT and business interests.

Similarly, a Deloitte India statement says that the budget should provide benefits - monetary or infrastructure - to start-ups focused on IP creation. At a broad level, the IT industry is hoping that the budget would provide clarity on the various issues related to taxation. “The government will have to bring in more clarity on the taxability of cloud based software product under VAT or service tax as they do not fall under the traditional definition of service or product. It also sought greater clarity on transfer pricing norms with the need to harmonise with market realities,” says P. N Sudarshan, Senior Director, Deloitte in a statement.

Nasscom too states that in order to bring stability of taxation regime, the government will have to clarify the royalty implications on software, eliminate minimum alternate tax on special economic zones (SEZ) and take steps to minimize litigations.

As the industry sets expectations rolling ahead of the budget, it is also keenly watching out the initiatives of the government especially the government’s promise to boost a digital economy with tax-friendly policies and a conducive business environment for growth and development.