IT industry wants STPI scheme to be extended, rollback 8% excise

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New Delhi, Feb 24 (UNI) With the global turmoil and a stronger rupee biting into its profits, the Indian information technology sector has much to expect from the budget in forms of an extension of the STPI scheme, dropping the eight per cent excise duty levied on packaged software and abolition of the fringe benefit tax (FBT) on ESoPs.

IT information technology sector has been a key driver for the burgeoning economy and the industry expects further incentives for growth of the sector, though a lot of issues need to be kept in mind before announcing further sops.

Expiry of tax concessions available to the IT industry after fiscal 2008-09 is a major concern. The industry receives tax exemptions under Sections 10A/10B of the I-T Act under Software Technology Parks of India (STPI) scheme. The tax holiday of software units registered with the STPI is due to end in 2009 under the sunset clause.

The IT sector argues that the finance ministry needs to realise that the software sector is one of the largest employers in the service sector and registers a growth rate of over 33 per cent. It also is one of the major contributors to exports.

The Government has remained silent on the extension or renewal of the tax holiday enjoyed by units registered under the STPI, but had extended the scope of the FBT on stock options granted even by multinational companies to their employees in the country in last year's Budget.

If the tax holiday is not extended, the industry is of the view that the maximum impact will be on the small and medium IT/ITeS firms, who comprise over 70 per cent of the category providing software exports about 35 per cent.

''The triad of service tax, FBT and MAT has enormously increased the cost of exporting ITES services for SMEs. Wrap this with spiraling input inflation, a beefier rupee, the impending erosion of the tax cover in 2009, and you have an industry that is staring at rapidly diminishing global competitiveness. The 2008 budget should look at a sorely-needed course correction for the ITES sector,'' says Smart Cube Managing Director Sameer Walia.

If the government does not realise the problems faced by the sector, it would give wrong signals to the industry and see decline in investment and forex earnings, he added.

The IT industry said the small and medium companies cannot move to Special Economic Zones (SEZs) and take taxation benefits under that due to various reasons and these companies would be severely affected after the expiry of the scheme.

These companies would not be able to pay the component of full income tax as this would push up the operating costs.

''The sunsetting of the STPI scheme will tilt the playing field completely in favour of large companies who can afford to move into SEZs while the small companies cannot. While we all know the large Indian companies, let us not forget that the fastest growing large Indian companies are subsidiaries of MNCs like IBM and Accenture,'' says Impetus Technologies Chief Executive Officer Praveen Kankariya.

Smaller towns are expected to offer cost advantage to companies entering the country. The SEZ Act 2005, without continuation of income tax incentive under Sections 10A/10B of the I-T Act in STPI scheme for next 10 years beyond 2009, may result in concentration of IT/ITeS activity in the metros and major cities, leading to an adverse impact on the development of the industry, which would lead to the increase in operational cost for MNCs.

This would further direct the movement of companies to head overseas for expansion, as better infrastructure facilities are available, which would result in large-scale brain-drain.

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