Industry Expectations / Recommendation - Budget 2011 - 2012
iGATE's recommendations for the forthcoming Union Budget 2011-12 - Sujit Sircar, CFO, iGATE
DIRECT TAXATION
1. Extension of tax holiday provisions for STPI units:
Recommendation: Continuance of tax holiday for FY 2011-12, given the fact that, under the Direct Tax Code to be introduced from April 1, 2012, tax holiday for STPI units will be withdrawn.
Tax holiday scheme has helped the small and medium IT exporters, to reinvest the excess cash and grow their business.
2. Options of transition from STPI to SEZ units:
Recommendation: To allow the STP Units to shift to the SEZ scheme and continue to enjoy tax holiday, under the DTC, without any restrictions.
In terms of the Direct Tax Code (‘DTC') Bill, tax holiday will not be available for the STP units, with effect from April 1, 2012. The only way in which STP units can avail of tax holiday under the DTC, would be, to shift to SEZ. With just an year left for withdrawal of the tax holiday, FM to introduce provisions which would enable the STP Units to transition to the SEZ scheme and continue to avail tax holiday.
3. Exemption from MAT and DDT for SEZ units:
Recommendation: To ensure that SEZ Units continue to get exemption from MAT and DDT, under the Direct Tax Code.
Under the current tax provisions, SEZ units are exempted from payment of Minimum Alternate Tax (‘MAT') and Dividend Distribution Tax (‘DDT'). The DTC Bill does not exempt SEZ Units from the payment of MAT and DDT.
4. Litigations for IT Industry for 10A/Transfer Pricing provisions:
Recommendation: To provide clarity with respect to certain terms in 10A provisions such as total turnover/technical services/onsite services etc. to avoid litigations, with retrospective effect.
Though section 10A(STPI)/10AA(SEZ) provides 100% income-tax holiday, the tax benefit gets mitigated due to anomalies/non clarity in the computation provisions and leads to litigations and huge demands across IT industry. IT industry would expect the FM to address these issues in the budget, rather than leave them open to interpretations creating long-drawn litigation and uncertainty.
On the transfer pricing front, the IT industry has been slapped with very huge demands because of Transfer Pricing Officers adopting high profit percentages. IT industry would expect the FM to ensure through an appropriate statutory amendment, with retrospective effect, tax holiday is allowed on differential profits as computed by the department.
Indirect Taxation:
To resolve ambiguities around taxation of software; blanket exemption of service tax for SEZ units to be provided as against the existing partial exemption/refund mechanism.
On the indirect tax front, there are tremendous delays in sanctioning service tax refund claim to exporters, and this impacts the cash flow. The process needs further simplification. Purchase of software licenses are doubly taxed, as product under VAT law and also as a service under service tax law.
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Union Budget