Mr FM Sir - What is your grouse against software industry?
MR Chidambaram Sir, when you started your Budget speech today with the words Mr Speaker, Sir, the software industry had every hope that you will continue to show the kindness and understanding that you have always show towards this industry. Post Budget, it seems clear that this industry has received a raw deal from you.
Relying expectations, you have not uttered a word in the Budget on the extension of the tax holiday available to the industry, whose significant turnover being exports, comes from Software Technology Park Units which are entitled to tax exemption under Section 10B of the Income tax Act, 1961. By implication, you have not announced the tax holiday extension which was widely expected from you. This is certainly very bad news for the 1500 odd STP Units, most of whom will not be able to get into SEZs. Firstly, the rentals in SEZs are far too high and most SME software companies cannot afford getting into the SEZs. Secondly, most SEZs are outside of the urban/ city lights making the decision to move into SEZs, an impractical one. You have failed to appreciate that one of the biggest factors contributing to the success of the SME STPs has been the tax holiday.
ot being content with this, you have also imposed service tax on the software sector. You have so widely defined the new taxable service, viz. Information Technology Software Service that practically everything connected with the software industry will now come under the service tax net. You have also left no planning possible with requisite amendments excluding the exemption that was till now available for software services under ' Business Auxiliary Services" and ' Consulting Engineer"s Service". Software services is perhaps one of the services which has been exempted over the years and over the last four years, you had resisted any attempt to tax this sector. But now, in a complete turnaround, you have brought the software services under the service tax net. You have been smart enough not to specifically mention this, in your speech. But the Finance Bill and the Notifications make your intentions to levy service tax on the software sector clear. As can be seen, the definition of the new taxable service, viz. Information Technology Software Service, given below, which will practically include anything and everything connected to the software services industry.
INFORMATION TECHNOLOGY SOFTWARE SERVICE:
Information Technology (IT) software service includes:-
-Development
(study,
analysis,
design
and
programming)
of
software.
-Adaptation,
up-gradation,
enhancement,
implementation
and
other
similar
-Services
in
relation
to
IT
software.
-Provision
of
advice
and
assistance
on
matters
related
to
IT
software,
including:
-Conducting
feasibility
studies
on
the
implementation
of
a
system,
-Providing
specifications
for
a
database
design,
-Providing
guidance
and
assistance
during
the
start-up
phase
of
a
new
system,
-Providing
specifications
to
secure
a
database,
-Providing
advice
on
proprietary
IT
software.
-Acquiring
the
right
to
use,-
-IT
software
for
commercial
exploitation
including
right
to
reproduce,
distribute
and
sell,
software
components
for
the
creation
of
and
inclusion
in
other
IT
software
products,
-IT
software
supplied
electronically.
-Software consists of carrier medium such as CD, Floppy and coded data.
Softwares are categorized as normal software and specific software.
Normalised
software
is
mass
market
product
generally
available
in
packaged
form
off
the
shelf
in
retail
outlets.
Specific
software
is
tailored
to
the
specific
requirement
of
the
customer
and
is
known
as
customized
software.
Packaged
software
sold
off
the
shelf,
being
treated
as
goods,
I
would
presume
that
your
unsymphatetic
attitude
towards
the
software
sector
started
last
year
itself,
when
you
extended
the
applicability
of
Minimum
Alternate
Tax
('MAT")
under
Section
115JB,
to
STP
Units
also.
Not
being
content
with
this,
you
had
also
brought
ESOPs
into
the
FBT
net
during
2007-08.
Moreover,
you
also
levied
services
tax
on
commercial
rentals,
which
affected
the
software
sector
more
than
anybody
else,
as
they
are
the
only
bunch
of
people
who
pay
high
rentals
on
the
commercial
space
used
by
them.
Looked
from
all
angles,
it
does
look
that
the
software
sector
is
one
of
the
worst
hit,
after
your
fifth
record
budget.
Mr
Finance
Minister
Sir
–
you
could
have
been
kinder
to
the
software
sector.