IT industry lobbies for extended tax holiday


New Delhi : The Indian IT industry has put in a strong demand for the extension of tax holidays under the Software Technology Parks of India (STPI) scheme, among other things, in its list of requests to the finance ministry.

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The recommendations have been made by industry body National Association of Software and Service Companies (Nasscom) as part of its pre-budget demands.

Under the STPI scheme, which was introduced in 1999, firms get tax holiday on profit from exports. The scheme ends March 2009.

According to Nasscom, in the absence of the STPI scheme, the only option left for the industry is to move to the special economic zones (SEZs) to enjoy the benefit of tax concessions.

This, Nasscom says, will affect the state of small and medium enterprises (SME) due to high rentals and low availability of SEZs in the required locations.

Also, the business process outsourcing (BPO) industry is gradually shifting to second and third-rung cities where there are no SEZs.

“BPO is a new and nascent industry with great growth and employment potential.At the same time, competition from other countries is intense, since it does not need any specialised manpower. Therefore, there is a strong case to nurture and support this industry. Extension of STPI is one necessary step,” Nasscom said in a statement.

“Other countries are offering big inducements to attract MNCs (multinational corporations) and Indian IT, BPO companies. These include tax holidays, free space, reimbursement of salaries and of training costs etc. Most also have superior infrastructure, resulting in lower operational cost,” it said adding that STPI scheme extension is necessary for creating a “level playing field between small and big companies and between India and other countries.”

Some of the industry’s other demands include broadening the network of large tax-payer unit (LTU) scheme and also setting up a mechanism for advance pricing agreements on transfer pricing issues.

Nasscom has also asked for the provision of refund of service tax paid on services utilised for export of computer software and BPO services, in the upcoming financial budget for fiscal 2008-09.

“The service tax on input services consumed in software and BPO business amounts to around three percent of business cost, which is a significant number when Indian companies have to compete in international market,” it said.

“Denial of service tax refunds to software exporters on the ground that software is exempt from service tax is not justified since export of even taxable services anyway is exempt,” it added.

The body has also urged the government’s attention on certain “critical issues” such as direct taxes in the form of fringe benefit tax on employee stock options and indirect taxes on import of services.