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IT sector unhappy with budget

The Union Budget 2011-12 was a huge disappointment for the IT-BPO sector of India as major demands of the $76 billion industry found no mention in finance minister Pranab Mukherjee’s budget speech. HT reports.

india Updated: Mar 01, 2011 00:27 IST

The Union Budget 2011-12 was a huge disappointment for the IT-BPO sector of India as major demands of the $76 billion industry found no mention in finance minister Pranab Mukherjee’s budget speech. Far from getting any kind of tax breaks or continuation of tax benefits under the STPI (Software Technology Parks of India) scheme, the FM imposed the Minimum Alternative Tax (MAT) on SEZs.

IT software industry association Nasscom (National Association of Software and Services Companies) plans to apprise the government of its concerns before the budget gets passed by the Parliament.

“The services sector was lauded for its double digit growth rates, but the fastest growing services industry, IT-BPO faced double negatives – imposition of MAT on SEZ and withdrawal of tax exemption under Section 10A/10B,” Nasscom said in a statement.

The software industry was particularly disappointed over tax breaks being discontinued in the STPIs. “The STPI benefits availed over the last ten years are expiring on March 31, 2011. In an SEZ benefits can be availed by new companies so all old companies will now have to suffer taxes,” said Achin Jakhar, CEO of IT firm Svelte Systems.

There are close to 7,000 registered units in 52 STPIs of the country. In April 2000, the government allowed a 10 year tax holiday for units operating from STPIs, to encourage export-oriented growth of the economy. An STPI caters largely to small and medium IT services companies of the country.

The introduction of 18.5% MAT (Minimum Alternate Tax)-- with an effective rate of about 20% -- is set to negate the impact of profit linked tax exemptions under the proposed direct tax code. The SEZ Scheme was announced as an act of Parliament and only last year it was clarified that under Direct Tax Code (DTC), SEZ units set up till 2014 will continue to get profit linked tax exemptions.

"Currently we need both direct and indirect support from the government to maintain ‘the India advantage’ as a global BPO destination. It is important to note that in countries like China and Philippines, the IT/BPO industry is enjoying support from their governments on tax benefits and policies and they can pose a great challenge to the Indian IT/ITeS industry in the years to come," Keshav R. Murugesh, Group CEO, WNS Global Services.

Wipro chief financial executive Suresh Senapaty too termed these tax proposals as retrograde in nature.