NASSCOM is dismayed at the proposal to extend MAT on export incomes which are exempt under Sections 10A and 10B. This is a regressive step that withdraws government’s commitment to provide tax incentives till 2009, on the basis of which companies have made their business plans and investment decisions. This could affect investor confidence and growth in this sector which is not only India’s biggest exporter (US$31.6 billion in 2006-07) but is the biggest employer in the organised private sector. It is our expectation that the introduction of MAT will be accompanied by an extension of the STPI scheme (and Section 10A, 10B benefits) by 10 years, as suggested unanimously by the IT industry. In order to sustain the growth momentum, this decision is required urgently.
We are also concerned with the selective pass-through status for venture funds and service tax on property lease, steps that will particularly affect SMEs and start-ups. The pass-through does not seem to include the BPO sector (including animation, gaming and KPO), a segment which accounts for about three-fourths of the IT sector venture funding.
Higher costs for leased space will adversely affect SMEs, which do not own office space, and reduce the competitiveness of India vis-à-vis other destinations. A change proposed with regard to ESOPs is not in keeping with international practice. The tax should be payable by the employee only at the time of exercising the option.
Issues like transfer pricing and the method of computation of export turnover have not been addressed. The former is of particular significance with regard to attracting foreign investments in this sector. We hope these will be taken care of separately.
We welcome the thrust on education, through the Sarva Shiksha Abhiyan1 and particularly through the ambitious new scheme of one lakh fellowships each year to bright students for secondary and higher secondary education. With a view to further provide a boost to the knowledge sector, we particularly welcome the creation of the Vocational Education Mission2, the Upgradation of ITI’s3 and are pleased at the Rs.33 crore allocation for the new scheme constituted for manpower development for the software industry. This is a good start towards skill development, improving the talent supply, and recognising the need to strengthen the talent supply for the IT and BPO industry.
The IT industry, along with many others, has been concerned about infrastructure. The thrust on rural infrastructure through Bharat Nirman4 is very positive. However, the increase in allocation for the Jawaharlal Nehru National Urban Renewal Mission5 is rather small. We hope that work on improving urban infrastructure will be greatly accelerated.
Despite the comparatively small allocation, the focus on e-governance6 is encouraging and we welcome this.
Budget 2007 Impact on IT Sector - A Snapshot
1 Increase in allocation for school education by 35% from Rs.17,133 crore to Rs.23,142 crore, of which Rs.10,671 crore for SSA, provision for strengthening of teachers training institutions to be increased from Rs.162 crore to Rs.450 crore with 200,000 more teachers to be appointed and 500,000 more class rooms to be constructed.
2 An initial provision of Rs.50 crore proposed for beginning work on a Vocational Education Mission; approach to be based on public-private partnership.
3 1,396 ITIs to be upgraded into centres of excellence in specific trades and skills under public-private partnership, Government to provide financial assistance by way of seed money; an interest free loan up to Rs.2.5 crore to be granted to each ITI for upgradation and revision of courses; Rs.750 crore set aside for this purpose.
4 In 2006-07, additional irrigation potential of 2,400,000 hectares to be created; until December 2006 - drinking water provided to 55,512 habitations, 12,198 kilometres of rural roads completed and 783,000 rural houses constructed with 914,000 houses under construction; 19,758 villages covered so far under the Rajiv Gandhi Grameen Vidyutikaran Yojana; 15,054 villages provided with telephone against target of 20,000 villages, and balance to be covered by the end of the year.
5 538 projects with a cost of Rs.23,950 crore sanctioned; allocation to increase from Rs.4,595 crore to Rs.4,987 crore
6 Allocation for e-governance to increase from Rs.395 crore to Rs.719 crore and for e-governance action plans at State levels to increase from Rs.300 crore to Rs.500 crore; Rs.33 crore to be provided for a new scheme of manpower development for software export industry.