Finance Minister P Chidambaram threw an extra year of corporate tax exemption to software exporters on Tuesday, cheering up companies cribbing about the impending sunset in the scheme for firms registered with the Software Technology Parks of India (STPI).
The scheme aided by which the country’s $ 41 billion IT export grew to global heights, was set to expire in March 2009. STPI was introduced in 1999 to give a fillip to the then nascent Indian IT industry. Companies located in STPI are not taxed on revenues earned from exporting software (which includes writing codes or computers of US & UK companies).
“As things stand, the Budget for 2009-10 may not be presented in February 2009 but only after the elections. In order to avoid any uncertainty as we draw close to March 31, .2009, it has been decided the exemptions continued until March 31, 2010,” Chidambaram said while replying to the debate on Finance Bill 2008-09 in the Lok Sabha.
“This will give the government sufficient flexibility to take a well considered decision and announce it at the appropriate time,” he said.
Share prices of IT companies recorded significant gains after the announcement. Bellwether stock Infosys technologies gained 5 per cent and reached an day’s high of Rs. 1761 before closing at Rs. 1749. Satyam gained the most at 8 per cent and closed at Rs 479. Wipro gained 4.7 per cent at Rs 478, and Tata Consultancy Services (TCS) advanced over 3 per cent to Rs 910.
Welcoming the extension TCS Chief Financial Officer, S Mahalingam said, "The confidence reposed in this industry when the STPI scheme was originally formulated has been fully met.
"The extension of tax holiday for IT companies has been very timely and will help face the impending challenges of prevailing global economic uncertainties as well as strengthening Indian Rupee,” said N. Ramachandran, CFO, iGATE Global Solutions.
Trade body National Association Software and Service Companies (Nasscom), have been lobbying to extend the tax holiday.
This decision is particularly beneficial for business process outsourcing (BPO) companies and the small and medium segment, who have been greatly impacted by the rupee appreciation, inflation and signs of slowdown of US economy.
“This benefit will also give us time to come up with other workable and acceptable options for the future, beyond 2010. The IT-BPO industry is expanding into smaller cities. It is important that we incentivate this move to Tier II and Tier II cities with STPI/ Special Economic Zone (SEZ) like benefits,” Nasscom said in a statement.