Good news? If IT’s there, it’s well hidden

26th February 2010
Good news? If IT’s there, it’s well hidden

IndiaTechOnline Budget Special:

C O M M E N T / INDUSTRY VOICESIndia’s Infotech industry that contributes so significantly to the national kitty, gets short shrift from the Finance Minister in his national budget for 2010-11.
To give with one hand and take back with the other, is an adroit act of gymnastics that India’s finance ministers are no strangers to. Pranab Mukherjee has elevated it to the level of an art – at least in so far as the Infotech industry is considered. Industries that have units functioning from inside the special economic zones enjoy significant exemptions for 15 years- 100% of profits from exports are tax exempt in the first five years, 50% in the next five and 50% in the last five years provided the profits are invested in specified areas. But much of what they gain by these fiscal incentives is taken back as Minimum Additional Tax or MAT-- a tax that has to be paid by the companies that are enjoying tax benefits or tax exemption under other schemes. Industry has been asking for MAT to be pared to reasonable levels – say 10 percent from the present 15 %. The Finance Minister has done the opposite: he has upped it to 18 %.
Similarly Domestic companies will get some relief as they are now asked to pay lower surcharge of 7.5 %on their tax liabilities… but by increasing MAT by 3 %, the Minister has ensured that what they gain on the swings, they lose on the roundabouts.
In another instance of biting the hand that has been feeding it, the government has done nothing to remove the uncertainty about continuing the benefits extended to units in software technology parks beyond 2011. The ‘ tenants’ are overwhelmingly ‘ small guys’, micro, small and medium sized IT units and as things stand they will lose all the benefits that bigger players in the Special Economic Zones will continue to enjoy.
So much for corporate IT. What about lay users of technology? There is nothing to show that government that touts its resolve to empower its billion plus citizens through information technology is willing to put its money where its mouth is – and make PCs and internet more affordable.
So the Usual Suspects from among the industry, who every year venture to comment on the budget’s fillip ( or otherwise) to the IT sector have been reduced to desperately searching for some nice things to say so that they can slip in the odd grumble. There are clearly no yelps of joy – and the need to be seen as politically correct makes some of them resort to polite if meaningless phrases. But who are we to criticize? They have a tough enough year ahead. You can judge for yourself from Infotech India’s leading voices , quoted here in no particular order: Here’s to insightful reading!
Anand Parthasarathy/ Feb 27 2010-02-26

Vinnie Mehta, Executive Director, MAIT
: We are glad that the Finance Minister has unveiled the roadmap for GST with a definite date for implementation i.e. April, 2011. Unification of the rate on excise duty and the service tax has been a step in the right direction towards implementation of the GST. The rate of service tax as well as that of excise duty will now be 10%. “Exemption of Special additional Duty (SAD) on pre-packaged goods for retail is also a welcome step as refunds for SAD were not forthcoming. However, to sustain hardware manufacturing in the country in the long run, it is critical that SAD on the input components be exempted as well.” Re: Exemption from basic customs duty, CVD and SAD on parts of battery chargers and hand-free headphones for the mobile phone industry until March 2011. This will enable backward integration in the sector.

Pramod Bhasin, Chairman, NASSCOM: The announcement of the Technology Advisory Group under Mr. Nandan Nilekani, automation of central excise, GST and commercial taxes will enable the vision of citizen centric governance. Our industry will partner with the government to drive inclusive growth within India, while continuing to be the leader around the world in IT and business process solutions”. Som Mittal, President, NASSCOM: the Finance Minister’s reaffirmation on the importance of SEZs will help the industry to take forward its SEZ plans across the country. The enhanced deduction on R&D investment will propel greater thrust on innovation and IP creation helping India to realize its vision of being the global R&D services hub. The tax benefits under the STPI Scheme are available till March 31st, 2011 and we will engage with the Government and through the Ministry of IT to represent for an equitable benefit to the SME sector.

Amar Babu, Managing Director, Lenovo India: The attention on e-governance with the UID project and the Technology Advisory Group indicates the Government’s continued move to leverage Information Technology in critical projects. It is also setting an example by generating thrust in the renewable energy sector. Spends allocation in the SME sector is welcomed, as that will allow for the sector to invest in IT for productivity and competency.
Lakshmi Narayanan, Vice Chairman, Cognizant: The proposals around using information technology as a key lever—such as allocation of budgets for the Unique Identification program; the decision to set up a Technical Advisory Group for looking into e-Governance and other projects—are encouraging. However, by allowing the STPI/EOU tax benefits to lapse, the competitive edge that the industry has consistently enjoyed over its peers across the globe may have been blunted. While large companies will be able to mitigate the tax pressures arising from the expiry of tax holiday by moving in SEZs, small and medium sized companies, which form the bulk of the companies registered with STPI, may be impacted adversely as they do not have the size, scale and financial wherewithal to avail of the benefits of SEZ. Since SEZ development is still concentrated around the metros, the end of STPI benefits will impede distributed and balanced growth in tier-II and tier-III towns in the absence of incentives for moving there.

Atul Gupta, Senior Director, Deloitte. Tax on services begins to pinch with large scale extension of service tax on services used by individual consumers. Service tax on air travel made comprehensive – makes it more expensive to travel by air even in economy class. Service tax extended to sale of apartments by deeming construction of service to be a taxable service – would result in hike of real estate by 10.3%. Service tax refunds for exporters made easier – restrictive condition regarding the service to be provided from India and used outside India deleted would come as a relief for IT /BPO companies which have thousands of crores stuck in refunds due to them.”

W. S. Mukund, MD, Acer India: For the PC industry there are some positives in terms of scope for adoption of IT in initiatives such as the Financial Inclusion Fund project to extend Banking to more habitats and scaling up of the Smart card projects in Health Insurance. That a Tech Advisory Group is being set up under the leadership of Nandan Nilakeni is another pointer to rapid adoption of IT projects in the areas of Taxation, Pension, Treasury, Infrastructure and GST.For the PC industry, which had shown a de-growth in the year 2009-10, the roll back of Excise/CVD to 10% is a big dampener.
Also some of the inconsistencies, that have been highlighted for redressal the last many months, such as MRP based abatement, phased reduction of CST to 1% (made all the more acute due to GST being postponed to the next fiscal) as also lack of any bold policy initiatives to make Broadband more pervasive and affordable, continue to persist. "

Vikas Khanvelkar, M.D, DesignTech System: The Budget has nothing new for the IT Industry. 2 % increase in excise duty on all the products will not have a very significant adverse impact on the demand and hence the production. Rise in petrol and diesel prices will increase the inflation which is already very high. GST has been postponed to 1st April 2011 as anticipated. Industry will have to keep dealing with multiple level taxation structure for one more year.

Rajan Sharma, Sales & Marketing GIGABYTE India: Given that the industry is still in a recovery mode the tax incentive should have been extended. The rolling back of excise duties may affect sales. There has been no proposal to abolish Special Additional Duty (SAD) across products which is discouraging. We are glad that the roadmap for GST has been finally unveiled, which is very critical for creating a single-India market. We hope for better involvement and engagement of the Government with the industry as the finer details of the GST is worked out.

Ashok Chandak, Senior director, global sales and marketing, NXP Semiconductors: With regards to the semiconductor industry, it is a welcome step with a focus on financial inclusion, solar semiconductors, Research and Development and further enabling the use of smart cards and identification technologies at various levels.The allocation of Rs. 1,900 crore to the UIDAI for 2010-2011 would provide an effective platform for inclusive growth and enable the participation of the rural population integrating them with various social welfare schemes and development. The assignment of Rs. 100 crore each for the Financial inclusion (FIF) and the Financial Inclusion Technology Fund …will further enable to provide banking and insurance services to the bottom of the pyramid backed by a technology platform.

N Chandrasekaran, CEO & MD, TCS: We appreciate the clarification on Section 10AA and the Direct Tax Code, implementation date. The changes to the personal income tax are very beneficial to all professionals and is in line with overall simplification theme. S Mahalingam, CFO, TCS: Enhanced focus on SEZs to drive growth and employment and clarity on the tax regime is welcome. This would aid recovery for the IT industry.

Padmaja Krishnan, director, Sales and Marketing, CSC India: There is good focus on the Banking sector as more banks will be encouraged. The budget is also a step in strengthening the Manufacturing sector. Both banking and auto stocks have led the rally as the stock market gave a thumbs up to the Union Budget 2010-2011. The allocation for the power sector has also increased by more than double. The National clear energy fund for funding research and innovative projects in clean energy technologies is a good initiative too.

Susir Kumar, MD and Chief Executive Officer, Intelenet Global Services: Overall, from an economic perspective, I am happy that the government has specific dates for implementation of direct tax codes, GST. Fiscal deficit retained at 5.5% will help contain inflation. Emphasis on growth to 9% of the GDP is commendable. Infrastructure funding for power and education sectors will have a direct impact on our industry and aid in the growth of the BPO industry. On the downside,I am disappointed that the 10 year tax holiday under Sec 10A and 10B has not been extended further as well as the increase in MAT from 15% to 18%.

Surjeet Singh, Chief Financial Officer, Patni Computer Systems: Increase in MAT from 15% to 18% on book profits would result in higher outgo of cash in the short term and would affect Indian corporates adversely. However this impact has been cushioned to a large extent by lowering of corporate surcharge from 10.0% to 7.5%. We welcome a higher percentage of weighted deduction on in-house R&D which has been increased to 200% from 150% as it will incentivize IT companies’ innovation focus. We appreciate the setting up of “Technology Advisory Group for Unique Projects” along with substantial outlay for UID project. This group will help in accelerated execution of large strategic Government IT projects thereby benefiting IT companies. Budget also proposes to ease the process of refund of service tax credit for exporters of services which will hopefully streamline the current cumbersome process. Tax reduction on account of changed tax slabs for individuals will also benefit the industry indirectly.However Budget has not addressed IT Industry’s demand for extension of Tax holiday under STPI scheme as per Section 10 (A) of Income Tax Act which is a significant negative fo

Sanjit Chatterjee, Country Manager, REVE Systems, leading IP Telephony and Mobile VoIP solutions provider: The telecom industry would have liked to get the infrastructure status for itself to enhance the speed of decision-making by the growing telecom subscribers. The industry would have liked to get a target to provide high bandwidth or 4G technology to 100 million consumers in the next two years. The telecom industry has a role to play in setting the tone for a steady double digit economic growth,

Naresh Wadhwa, President & Country Manager, Cisco India and SAARC: The ‘National Clean Energy Fund’ will position India as a leading force in finding ways to combat the imminent energy crisis. It will also simultaneously encourage research and technology projects in the clean energy space.The proposed provision to simplify the FDI (Foreign Direct investment) model followed in India is also a welcome measure.This budget paves the way for tax reforms on in-house R&D expenses, and also on contributions made towards scientific research to associations, colleges, universities and other institutions. While research and development gets a leg-up, higher education and corporate tax reform waits for its turn. The UIDA took the lead among e-infrastructure initiatives, and broadband roll-out and major e-governance projects still needs to be addressed.”

Ajai Chowdhry, CEO and Chairman, HCL Infosystems: The Union Finance Minister has also given us a clear direction on the roadmap for GST with a definite date for implementation i.e. April, 2011. I am sure that the various measures announced today will go a long way to ensure proper focus on taking core sectors like education, healthcare, social security, rural development, national security and banking to the grass root levels. Further to this, deduction on In-House R&D has been increased to 200% from 150%, which will definitely help put back focus on R&D.

Jaswinder Ahuja, Corporate Vice President & Managing Director, Cadence Design Systems (I): Although there haven’t been any significant incentives or reforms for the information technology sector, the tax reforms for R&D expenditure is a good step towards encouraging innovation in India across sectors, as well as in our national research bodies. The proposal to simplify the current foreign direct investment (FDI) policy is also a positive step. The focus on clean energy investments - with the increased allocation towards renewable energy and the setting up of the ‘National Clean Energy Fund’ for funding research in clean technologies - is a welcome measure. For the semiconductor and solar industry in India, the proposal to set up solar, small hydro and micro power projects in the Ladakh region of Jammu and Kashmir seems encouraging. Significant budgetary allocations towards the Unique Identification Authority of India (UIDAI) project is likely spur investments in smart card technology in India. Other steps that stand out for the semiconductor industry include the reduction of Central Excise duty on LED lighting and the CVD tax exemptions on all medical equipment.

Lakshman Narayanaswamy, Co-founder and VP Products, Sanovi Technologies: We welcome the FM's focus on IT in all aspects of governance. The UID scheme which had been announced last year is a step towards "inclusion". The roll-out of the UID scheme shows that upgrading of IT infrastructure is very important for the FM. We are very happy that the FM has announced the setting up of the Technology Advisory Group under the UIDA Chief Mr. Nandan Nilkeni, which will expedite the technological roll-out in the Government.

Vivekanand Venugopal, Vice President & GM, Hitachi Data Systems, India
“Overall a positive budget. Growth schemes in Banking, Investments in e-Governance and Infrastructure will drive investments in IT. The revision in Income Tax slabs and investments in Rural Sector Development is encouraging”