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End for IT’s long honeymoon

The FM decides to increase excise duty on packaged software to 12 per cent and levy a 12 per cent tax on customised software solutions, report Narayanan Madhavan and Venkatesh Ganesh.

india Updated: Mar 01, 2008 02:34 IST
Narayanan Madhavan and Venkatesh Ganesh
Narayanan Madhavan and Venkatesh Ganesh
Hindustan Times

Finance Minister P Chidambaram’s leap year budget brought a stark message to boom boys in the country’s information technology sector: Fall in line guys, you are not special anymore.

For more than a decade, software exporters have been enjoying total exemption from corporate taxation and were hoping that firms registered with the Software Technology Parks of India (STPI) scheme will get an exemption from the “sunset clause” that is due to kick in from 2009. But the silence in the budget was ominous.

What’s more, the minister decided to increase excise duty on packaged software to 12 per cent from 8 per cent and levy a 12 per cent tax on customised software solutions – which are like tailor-made apparel.

“The budget has not been positive for the IT industry. Smaller companies should have been given tax relief in this budget to counter the impact of a sharply appreciated rupee,” said Kris Gopalakrishnan, CEO of Infosys Technologies

“The service tax of 12 per cent on customised software and higher excise duty on packaged software could lead to increased cost of IT and could slow down usage in the domestic sector,” said NASSCOM president Som Mittal.

Industry officials say that large software firms can go for tax-exempt special economic zones on the lines of manufacturing firms but smaller ones will be shaken after 2009.

Raman Roy, chairman of Quattro BPO Solutions and an industry pioneer, said India could lose out to other countries and job growth could slow as a result of the tax holiday not being extended. “The BPO industry in India is still young compared to the IT industry and needs the support of the government till it reaches a phase of growth and maturity,” said Susir Kumar, CEO of Intelenet. Some hope next year could bring the anticipated extension.

Lakshmi Narayanan, vice-chairman, Cognizant Technology Solutions, hopes the government steps up e-governance , taking forward measures like the extensive use of IT in income-tax administration.