The Hindu Business Line : Industry welcomes thrust on education; winces at MAT, stock options under FBT

Minimum Alternate Tax: This would impact the entire IT/ITES units, as there is a 12 per cent tax ( approximately) on the adjusted Book Profits, for which the credit can be claimed when the STPI benefits are exhausted in two years and this is a clear indication of the thinking of the Government that the era of tax holidays for IT is over.

Fringe Benefit Tax on Employees Stock Option Plans: Given that talent in IT is extremely valuable and ESOPs have been the cornerstone of the retention strategies for the Industry, this move is clearly one that would impact the industry, though we need to understand the exact mechanics of how this would be computed.

Although, there seems to be significant thrust in education, the focus needs to be much more far reaching and it is hoped that the Government will initiate the process of comprehensive education reforms in the not-so-distant future. The capability of academic institutions to anticipate and meet the resource needs of industry is one of the corner stones of any innovation eco-system. And, only if this core need is fulfilled, can the country realistically expect to continue its march to global supremacy in the knowledge industry.

Mr R. Chandrasekaran, President and Managing Director, Cognizant:

Additional investment in education, research and development, and innovation is clearly welcome, as that would further enhance workforce development. Special schemes for ITI enlisting the support of multiple entities should, over time, positively impact the labour pool for consumption across industries.

Service tax on commercial leased premises will have a direct bearing on the cost of operations and will adversely impact small and medium sized companies, specifically in the IT and BPO segment, which are large consumers of leased space. As most small companies in the knowledge industry initially start off in leased premises, a move in this direction would not help in nurturing and sustaining such companies.

Mr Sandeep Arora, Lead Executive, Accenture IT and IT Services:

For the employees of IT firms, ESOPs will now come under the ambit of the fringe benefit tax. So the income-tax burden of employees who own ESOPs will increase. On the flip side, venture capital funds that make investments in information technology start-ups relating to hardware and software development have been granted a pass-through status. This should encourage more VC funds to invest in IT start-ups.

Mr P.G. Raghuraman, Lead Executive, Accenture BPO:

Like the IT sector, the BPO/ITES sector will also be impacted by the introduction of MAT and the FBT on ESOPs. Besides, BPOs that are being run out of rented premises will now have to pay service tax. On the hind side, the FM's renewed thrust on education will benefit the BPO/ITES sector (albeit over the long-term).

Mr Ashank Desai, Non-Executive Chairman, Mastek: With regard to the IT sector, the Budget has come as a mixed bag. The increase in allocation for e-governance measures is commendable and should result in benefits for both the sector and the nation as a whole in the longer term. At the same time, we believe that extension of MAT to companies that had earlier been promised 10A and 10B exemptions is likely to have an adverse impact on certain players. In addition to that, the inclusion of ESOPs under FBT will add to the challenges being faced by employers in knowledge-intensive industries in attracting and retaining world-class talent."

Mr Raju Vegesna, Chairman & CEO, Sify Ltd:

The focus on Central and State eGovernance Programmes will benefit everyone with better governance that is transparent, efficient and citizen friendly. So, it is a little disappointing when there is a the need to ensure more citizens have access to the Internet to participate in eGovernance, cyber cafes and Internet access services have not been exempted from service tax. Such a measure would have given a boost to the Government's efforts to rapidly increase Internet penetration and use, as well as contributed to the success of the eGovernance services being rolled out.

Mr Deepak Ghaisas, CEO-India Operations and CFO, i-flex Solutions:

This budget from the long-term perspective provides positive incentives to increase investment in the educations system — both in secondary and higher education. That is a vital requirement for the IT industry in the coming years as the shortage of talent is a major constraint.

However, there have been no major signals on upgrading infrastructure, especially as we need large investments here. Some estimates put the requirements at over $100 billion and the IT industry needs infrastructure if it is to continue to grow.

The planned expansion of expenditure on e-Governance is a good signal and will serve to expand the domestic market and IT companies will see government spending coming their way, which is a good thing.

However, from short-term perspective, I believe the Budget provides debits and no credit.

The IT industry had some expectations, I don't think the Finance Minister has taken them into account and if he has introduced any measures that affect the IT industry, the impact of these measures is negative. One of the hopes was the Government would consider extending the Software Technology Park scheme and Section 10A of the Income Tax Act beyond 2009. This would be especially important for SME sector. Most IT industries are already paying tax, but the MAT imposition on the IT industry would negatively impact those of SME enterprises who are not paying any tax

There has been no further clarification of the SEZ scheme and this will continue to keep many IT companies from finalising their capital expenditure plans.

Mr N. Ramachandran, Member of the Board and CFO, iGATE Global Solutions:

The Budget is a disappointment for the IT sector as the Government has sprung an unwelcome surprise by imposing MAT of 11.23 per cent on the sector, which was given tax break till March 2009. The proposals to bring employee stock options under fringe benefit tax and increase in the dividend distribution tax is also regrettable.

Mr Sumeet Nadkar. CFO, Kale Consultants:We are unhappy about the levy of MAT for technology companies. And also about the disguised increase in effective tax rate, due to MAT and increase in the surcharge.

Mr Ravi Pandit, Chairman and Group CEO, KPIT Cummins: It is rather unfortunate that MAT has been introduced for companies who are tax exempted under Section 10A & 10B. Hopefully many IT companies will get credit for the tax that they pay in foreign countries. The net impact of this provision could be in the range of 0.75% to 2.00% of revenue for most of the companies.