New Delhi: On the Union Budget 2007-08, National Association of Software and Service Companies (NASSCOM), the premier trade body and 'voice' of the IT software and service industry in India, has given a mixed reaction.
NASSCOM is dismayed at the proposal to extend (Minimum Alternate Tax) MAT on export incomes which are exempt under Sections 10A and 10B.
This is a regressive step that withdraws Government’s commitment to provide tax incentives till 2009, on the basis of which companies have made their business plans and investment decisions.
This could affect investor confidence and growth in the IT sector which is not only India’s biggest exporter ($31.6 billion in 2006-07) but is the biggest employer in the organised private sector.
It is our expectation that the introduction of MAT will be accompanied by an extension of the STPI scheme (and Section 10A, 10B benefits) by 10 years, as suggested unanimously by the IT industry. In order to sustain the growth momentum, this decision is required urgently.
We are also concerned with the selective pass-through status for venture funds and service tax on property lease, steps that will particularly affect SMEs and start-ups.
The pass-through does not seem to include the BPO sector (including animation, gaming and KPO), a segment that accounts for about three-fourths of the IT sector venture funding.
Higher costs for leased space will adversely affect SMEs, which do not own office space, and reduce the competitiveness of India vis-à-vis other destinations.
A change proposed with regard to ESOPs is not in keeping with international practice. The tax should be payable by the employee only at the time of exercising the option.
Issues like transfer pricing and the method of computation of export turnover have not been addressed. The former is of particular significance with regard to attracting foreign investments in this sector. We hope these will be taken care of separately.
NASSCOM has welcomed the thrust on education, through the Sarva Shiksha Abhiyan and particularly through the ambitious new scheme of one lakh fellowships each year to bright students for secondary and higher secondary education.
With a view to further provide a boost to the knowledge sector, we particularly welcome the creation of the Vocational Education Mission, the Upgradation of ITI’s and are pleased at the Rs 33 crore allocation for the new scheme constituted for manpower development for the software industry.
This is a good start towards skill development, improving the talent supply, and recognising the need to strengthen the talent supply for the IT and BPO industry.
The IT industry, along with many others, has been concerned about infrastructure. The thrust on rural infrastructure through Bharat Nirman is very positive. However, the increase in allocation for the Jawaharlal Nehru National Urban Renewal Mission is rather small. We hope that work on improving urban infrastructure will be greatly accelerated.
Despite the comparatively small allocation, the focus on e-governance is encouraging and we welcome this.
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