Continue full tax exemption, urge software firms
Sumeet Chatterjee

INDIA'S high-profile software development industry hopes the federal budget for fiscal 2003-04 would continue with the full tax exemption regime to help it cope with the an anaemic recovery in the global tech market.

The software makers have also urged the government to remove bureaucratic hurdles and unnecessary regulations to boost the use of technology and Internet-based services in different parts of the country.

Finance Minister Jaswant Singh will present his annual fiscal package for 2003-04 in Parliament on February 28.

"This year’s Budget is crucial for the Indian IT industry in the wake of the proposals to withdraw fiscal incentives on exports," said Jyoti Bhatia, a technology industry analyst with credit rating major ICRA India Ltd.

"The industry hopes the Budget would create a framework for further growth of the sector. Government support in the form of tax incentives and marketing support provides a lot of bandwidth to small companies," Bhatia told IANS.
The domestic software development and services companies are concerned over the recommendations of a high-level Indian panel on taxation.

The government-appointed committee, which submitted its report to Finance Minister Singh in December, has recommended withdrawal of the tax incentive under section 10A and 10B for all, except for companies engaged in manufacturing computer software.

The recommendations of the panel headed by Vijay Kelkar, adviser to the finance ministry, are likely to be part of the government’s annual Budget for fiscal 2003-04.

"The outstanding success of the IT sector is an example of what government support and government-industry partnership can do," said Kiran Karnik, president of the National Association of Software and Service Companies (Nasscom).

"To build on this, the government should honour the commitment of full exemption from taxes on export profits till 2010, since investments and business plans have been made on the basis of this commitment.

"This is all the more necessary, as the global economic scenario continues to be bleak and the industry is fighting competition from emerging countries," Karnik added.

India’s booming IT industry has managed to hold its own against the old economy in terms of sops announced in the annual budget in the last few years.

A host of overseas firms such as General Electric, British Airways, Cisco Systems and American Express outsource their software services and back-office operations to low-cost centres in India.

This has helped the industry to log a 29 per cent growth in software exports to $7.5 billion in the fiscal year ended March 2002 over the previous year. This compares with just $1 billion worth of software exports during 1996-97.

Industry players have also demanded a tax moratorium on e-commerce at least for the next five years.

"We have also asked the government to encourage Internet-based transactions and not impose new and unnecessary regulations, bureaucratic procedures, or taxes and tariffs on commercial activities that take place on Internet," Karnik said.

The software makers have also requested the government to pursue the Totalisation Agreement with the USA and the tax withholding issue with Japan vigorously to help Indian IT firms further their reach in these markets.

"The IT industry also looks forward to impetus to e-governance and flow of the compulsory three percent of government spending on IT not only in hardware but in the software and services sector," said Bhatia of ICRA.