The Hindu Business Line : Tax waiver for STPI units to continue till March 2010

New Delhi/Mumbai, April 29 In a relief to the IT and BPO industry, particularly smaller companies, the Government today extended the tax exemption available to companies under the Software Technology Parks of India (STPI) scheme by one year to March 31, 2010.

The STPI clause which was originally slated to lapse on March 31, 2009 would have hit the earnings of companies the following year, by raising the tax outgo to 18-22 per cent from about 12-15 per cent depending on operational structure of individual firms.

FM’s announcement

Replying to a debate on the Finance Bill in Lok Sabha, the Finance Minister, Mr P. Chidambaram, said that while the decision should ideally have come in Budget 2009-10, the Budget may not be presented in February, 2009 but only after the elections.

“Therefore, in order to avoid any uncertainty as we draw close to March 2009, it has been decided that the two sections (10 A and 10 B) will be amended and the exemptions continued until March 31, 2010,” the FM said.

Mr Som Mittal

Welcoming the announcement, the Nasscom President, Mr Som Mittal, said that the move would be especially beneficial for SMEs and BPOs, as the impact on them would have been harder in the wake of the rupee appreciation, the possible downturn in the US, and the overall pressure on margins. “It provides an interim relief to the industry,” Mr Mittal said. The software association - which was pitching for a 10-year extension of the STP scheme - further said that the announcement would give industry time to come-up with other workable and acceptable options for the future, beyond 2010.

Lauding the STPI extension, Mr S. Mahalingam, Chief Financial Officer and Executive Director of India’s largest software exporter Tata Consultancy Services, said that the extension would strengthen the IT industry and “hopefully, pave the way for further extensions."

Aggressive on SEZ plans

Mr V. Balakrishnan

Although the export-oriented Special Economic Zones (SEZs) now cropping-up in India offer a five-year, 100-per cent tax holiday, the small software and BPO companies cannot either find or afford space in the enclaves. “The extension would benefit the SMEs who are finding it difficult to move into SEZs. Most of the larger companies are already pursuing their SEZ plans aggressively. The move will enable them to enjoy the tax benefits further for a period of one year on their revenues derived from their existing STP operations,” Infosys Technologies CFO, Mr V Balakrishnan, said.

Besides a one-year reprieve from a higher tax outgo, the announcement would provide additional time for companies to shift operations to SEZs.

Mr Ganesh Natarajan

“While we will still look for SEZ space, the extension will give us time to re-evaluate our plans since there is no urgency to immediately move into an SEZ,” Mr Ganesh Natarajan, Deputy Chairman and Managing Director of Zensar Technologies, said. The tax liability would have increased from current 19 per cent to almost 23 per cent (post-March 2009), if the extension had not come through.

‘Releif’

Mr N. R. K. Raman, Managing Director & Chief Executive Officer, i-flex Solutions, termed the announcement as a welcome measure and relief. “The global economy is quite volatile and at this time every attempt should be made to support the Indian IT industry that has contributed immensely to the GDP, overall economic development and continues to hold great potential for the future,” he said.

The IT sector has been battling difficult market condition, rupee appreciation, rising wages and a potential slowdown in the US and was seeking continuation of STP scheme to soften the blow. It argued that an extension would enable companies to stay competitive, particularly as other countries are doling out sops (tax holidays, free space, superior infrastructure) to attract MNCs and even Indian IT companies.

PM thanked

Last week, the IT and Communications Minister, Mr A. Raja, had sought the intervention of the Prime Minister over the issue of extension of tax incentive under the STP scheme. Mr Raja thanked the PM for extending the STPI scheme for a year.

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