...While Some in the IT Industry Welcome the Move

by CXOtoday Staff    Mar 01, 2007

Even as Nasscom rattled out a statement penning agonies, specially against taxes announced by Dr P Chidambaram in his budget speech yesterday, a section of the industry has in fact claimed that the taxes would not put an additional burden on the sector.

Some in the industry believe that the measures taken by the finance ministry is a recognition of the phenomenal growth experienced by the IT sector.

According to Parag Patankar, chief operations and technology officer, Development Credit Bank (DCB), “The Budget laid emphasis on controlling inflation while channeling investment in core sectors like agriculture and infrastructure development besides further rationalizing duty structures. For the IT sector, there were some negatives including extension of MAT to cover income in respect of which deduction is claimed under sections 10A and 10B of the Income Tax Act.”

He further added, “The actual impact of these measures on numbers on players in the sector could vary from marginal (for those companies who are already paying a threshold level of taxes) to significant (for those who presently have a low tax liability) and would be known in a few days’ time. Expectations of the IT industry in the areas of extension of tax holidays for STPIs, measures on SEZs and some reduction in excise duties on packaged software etc. did not materialize. I think the message is that the IT industry is doing well and should not only continue to do so, but should become more competitive globally and increase its share of contribution to the Indian economy rather than expecting too many more sops from the government in future.”

Partha Iyengar, VP - Research, Gartner India Research and Advisory Services, echoed similar sentiments, “The two minor irritants for the IT industry, the MAT and ESOPs coming under the FBT are also not major industry wreckers (as the stock markets seem to have interpreted them!). They are a minor turbulence for an industry that is growing rapidly, is reaching some level of maturity and is not going to be affected in the medium to long term by blips like these. In fact, one can argue that the MAT route is a good way to start getting the IT industry closer into the tax regime, which, even some leading IT industry CEOs have been pitching for.”

Amar Chintopanth, executive director and CFO, 3i Infotech was of the opinion that “Though there is an increase in coverage of MAT for 10A/10B companies, there is the facility of carry forward of MAT which is available to all companies. So in effect we will not have much impact on profits.”

Vallabh Bhanshali, chairman, Enam Financial Consultants too noted that the actual impact of tax measures such as increase in excise duty on cement or taxing IT companies is going to be only marginal. IT companies already pay 8 to 14 % local and foreign income tax and hit to the bottom line will therefore not be more than 3 to 5 % depending on how much credit they will get for the taxes paid abroad. “Dividend distribution tax increase will hurt but not kill. If things stabilize next year you could see roll back and also drop in tax surcharge,” he predicted.

Chief executive at the Computer Society of India Shashi Ullal remarked, “We anyways do not need anything else from the government. We are doing very well.”