The Hindu Business Line : Industry seeks ministry for business outsourcing

Distress call
Extension of tax holiday and withdrawal of MAT for the first 5-10 years for new units.
Additional tax sops to offset the losses incurred due to the appreciation
20-year extension of tax holiday for BPO units located in STPI.

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New Delhi, Feb. 19 The Business Process Outsourcing industry today sought a creation of a separate Ministry or Department in the Government for a sharper sector-specific focus and asked for fiscal incentives such as extension of tax holiday for BPO STPI units and withdrawal of minimum alternative tax (MAT) for initial 5-10 years for new units.

Different Biz

“Between IT and BPO these are completely different businesses but they are being bunched together. The back office, call centre or KPO industry is quiet different in terms of demands, needs, attrition and manpower and it is unfair to club it with the IT industry. We feel that there is a need for carving it into a separate Ministry or Department to give it the required focus be it infrastructure or policy,” Mr Sam Chopra, President, Business Process Industry Association of India (BPIAI), said.

BPIAI has sought a separate Business Process Ministry or alternately re-classification of the Ministry to the services industry Ministry with special telecom, BPO and IT departments.

FBT on ESOPs

In line with the demand of the IT software services sector, the BPIAI too has asked for extension of the tax holiday. The association has asked for a 20-year extension of tax holiday for BPO units located in STPI. In addition, it has also asked for abolition of FBT on ESOPs.

In the past three years, the BPO in India grew at a Compounded Annual Growth Rate (CAGR) of 39 per cent. As per the latest Nasscom survey, exports from BPO units rose by 33 per cent to $8.4 billion in FY07.

Tax sops

The industry which is facing the heat of rupee’s steady rise against the greenback has also asked for additional tax sops to offset the losses incurred due to the rupee appreciation along the lines given to the manufacturing industry and goods exporters.

This, it said, was critical as BPO contracts are long tenured and cannot easily be renegotiated. “Moreover, client replacement and process migration takes almost 6-9 months thereby making it inflexible and impractical to change contracts,” the association said.

BPIAI has also pushed for tax sops for the fast-growing domestic BPO space, saying it was generating huge employment opportunities and in particular creating high level of employment in tier 3 and tier 4 cities.

“Service tax should be completely withdrawn from BPI because the international leg of BPI are exporting their services and not able to take any benefit of setting-off input service credit.

“With the introduction of service tax on rent and other services, huge amounts of working capital are blocked with the department and it is extremely time consuming to get refunds of the Service Tax.”

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