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Monday, March 10, 2003

Heads IT wins, tails IT gains
Tribune News Service

Illustration by Sandeep JoshiTHE Budget this year has been please-all and the IT sector has been the happiest of all barring the cyber café sector, wherein service tax has been imposed. In a nutshell, it has given a boost to the IT and telecom sectors. The endeavour of the Government is to sustain and encourage the momentum of growth achieved in both sectors. Concessions given to IT under Sections 10A and 10B of the Income Tax Act will be continued, even in the case of amalgamation of de-merger. The value of pre-loaded software has been excluded for the purpose of charging excise duty on computers.

In addition, customs duty on a number of capital goods used by the telecom and IT sector for manufacture of components will be reduced from 25 per cent to 15 per cent. For optical fibre cables used widely for networking to provide bandwidth to the IT community, the customs duty is also being reduced from 25 per cent to 20 per cent. To enable the domestic industry, manufacture e-glass roving used for making optical fibres, the provisions propose to reduce the import duty on specified raw materials for the manufacture of e-glass roving from 30 per cent to 15 per cent.

The tax holiday enjoyed by telecom and domestic satellite service companies has been extended by one more year till March 31, 2004. Here is how the industry big shots have reacted to the Budget this year.

Arun Kumar, chairman, Nasscom, India’s apex industry association of IT software and service companies, welcomed the Union government’s support in the Budget 2003-04 by retaining the full tax exemption under Section 10A/10B to the industry as committed by the government and originally envisaged. Nasscom is also pleased over the government’s move to amend the clause in Section 10A/10B of the Income Tax Act which was holding back acquisitions and mergers.

"The retention of Section 10A/10 B is a positive step by the government which will help continue the growth momentum of the Indian IT and ITES industry. Overall, the Budget is IT friendly and we are extremely pleased that the government has restored its earlier commitment. The government has taken a long term approach to support the industry which has consistently contributed to the growth of the Indian economy," Arun Kumar says.

Speaking on the Union Budget 2003, Kiran Karnik, president, Nasscom says: "We are delighted the government has accepted our recommendations with regard to full exemption of taxes on export profits and also excluding demergers and amalgamations from the provisions of sections 10A/10B. We welcome the government’s move to exclude excise duty on pre-loaded software that will help reduce software piracy in India. Pre-loaded software, which was bundled with hardware, was subject to excise duty and the doing away of the same will encourage PC adoption in the country. This will also provide a major boost to usage of legal software and encourage Intellectual Property Rights."

At the broader level, the move towards computerisation of the Customs and Income Tax departments is a welcome step. This will not only increase efficiency and transparency, but also will give a boost to the domestic IT market and stimulate e-governance rollout in the country. The removal of taxation will assist the industry especially SME’s in investing and expanding their base across new service lines and geographies.

Rajiv Kaul, managing director, Microsoft India Corporation India Limited, says: "The Union Budget 2003 provides positive impetus for growth across industries, overall.

On the software front, the removal of excise duty on software pre-loaded by OEMs, along with the proposed reduction of customs duty on computer peripherals, as suggested by the Minister, is likely to help bring down overall PC prices further, enabling increased PC penetration."

Vijay G. Kalantri, president, All India Association of Industries (AIAI), however, opines that Singh’s Budget lacks growth punch. "The Union Budget presented by the Finance Minister lacks the much-needed emphasis and thrust on growth, as the power sector reforms are totally neglected because most of the states are power deficit and there cannot be any growth without power. The Finance Minister should have laid emphasis on growth and savings both, but has missed the bus. AIAI feels further de-reservation of 75 items from small scale sector list as well as not increasing the excise exemption limit of the sector from 1 crore to 1.5 crore as the input cost has gone up, shall adversely affect the growth, development, exports and employment generation of this sector. Fiscal deficit at 5.3 per cent of GDP and increase in non-plan expenditure and inadequate funds for plan expenditure shall further widen the fiscal deficit and growth.

AIAI further feels that raising of service tax from 5 per cent to 8 per cent and also expanding the list will adversely affect the industry and it is a sweet way of burdening the taxpayers’ indirectly. Pramod Khera, CEO and Managing Director, Aptech Ltd., says the Budget has continued with the reform process through rationalisation of tax and providing impetus to the capital markets. The Budget is good for the salaried person and gives a feel-good sentiment across all segments.

Specifically for the IT industry, the restoration of tax concessions is a welcome step. Also the removal of tax on software bundled with hardware removes the long felt ambiguity on this count. Coupled with the lowering of the customs duties on capital goods imports, these steps are definitely positive for the IT industry. This should boost the software exports as well as provide a push to the spread of IT in the domestic industry. Naturally, this has a positive rub-off on the IT-Training industry, since the IT industry will expand and require more trained manpower.

Pramod Saxena, country president, Continental India, Motorola, avers that this year’s Budget is a balanced one with a focus on fiscal discipline through tax reforms aimed at facilitating economic growth and aligning India’s entry into WTO.

On the telecom front, he welcomes the Government’s decision to reduce the overall duty impact on import of telecom equipment from 25 to 15 per cent. This decision complements the recent verdict by GOM to raise FDI in telecom from 49 to 74 per cent, which will bring in the much needed fresh investments for accelerating growth. It will also result in increased competition in the industry, which will drive down communication costs and boost teledensity in India.