Budget dashes IT industry’s hope on tax holiday extension


Bangalore : The booming IT industry in India’s silicon hub was disappointed over the absence of tax holiday extension in the national budget for fiscal 2008-09.

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“We are disappointed that there is no mention about the extension of tax holiday beyond 2009 for IT firms registered with the state-run software technology parks of India (STPI). We hope the finance minister will address the issue and extend the benefit to sustain the growth of the industry,” Wipro chief financial officer Suresh Senapaty told IANS Friday.

The sunset clause under Section 10A/10B of the Income Tax Act of 1960, exempting IT firms registered with STPI from corporate taxes for 10 years, expires March 31, 2009.

Through its representative National Association of Software and Services Companies (Nasscom), the IT industry petitioned the government to extend the tax holiday scheme beyond March 2009 to enable it to sustain the present growth rate of 30-32 percent and minimise the impact of an appreciating rupee on its export income.

“Though there is still a year left for the government to decide on our plea, we appeal to the FM (finance minister) to respond positively over the next two months before the budget is passed.”

“As a policy decision, the much-expected benefit should have been made in the budget proposals. Such a decision would have spurred entrepreneurs and small and medium enterprises to invest more,” Senapaty pointed out.

Infosys’ chief financial officer V. Balakrishnan also said the budget had dashed the hopes of the industry by not addressing the tax holiday extension issue.

“Contrary to expectations, there is nothing for the software sector in the budget. We are disappointed that our concerns over the extension of STPI benefits find no mention in the budget,” he said.

“We hope the FM will amend the law to extend the relief for at least 10 more years, especially to small and medium firms.”

The IT industry also expressed disappointment that its representation for exemption of dividend tax and employee stock options from FBT (fringe benefits tax) were ignored.

“Instead, the budget proposal to exempt FBT on sponsorship of an employee sportsperson and sport events will be incremental. Even exempting crèches and guesthouses from FBT do not ease the tax burden in the absence of no change in the overall corporate tax,” Senapaty said.

Similarly, the industry termed the increase in excise duty to 12 percent from 8 percent on packaged software a retrograde step, as it would burden end-users of IT products and services in the domestic market.

“Though the budget attempts to remove the anomaly between packaged and customised software by increasing the excise duty on the former and levying service tax of 12 percent on the latter, IT firms operating in the domestic market will be forced to pass on the burden to vendors and end-users,” Encore Software CEO Vinay Deshpande said.

On the flip side, the chief financial officers of the second and third largest IT bellwethers have welcomed the budget proposals to spur growth and investments in social sectors.

“Overall, the budget is balanced and meets the requirements of various sections of society. Higher allocations for education, healthcare and housing will make the economic growth continue,” Balakrishnan said.

“Similarly, increase in threshold limit of income tax and new slabs for levying tax at 10, 20 and 30 percent, reduction in customs and excise duties on small cars and two-wheelers will lead to more disposable incomes and greater consumer spending.” He added.