The Hindu Business Line : ‘Tax sops can help IT sector spread into smaller towns’

Bangalore, Sept. 19 The withdrawal of tax benefits for the IT and ITeS sector, which is already battling a slower business environment and higher operating costs, could thwart its spread into smaller towns.

The industry is actively focused on growing in Tier II and III towns to help cut down on the high costs of operation incurred in bigger cities.

Mr Ashok Kumar Manoli, Principal Secretary, IT & BT Department, Government of Karnataka, said income-tax benefits to the IT and ITeS sector would go a long way in promoting Tier II and III cities as IT destinations.

He was speaking at a conference organised by the Confederation of Indian Industry, which in association with KPMG released a report on the impact of the expiry of income-tax holiday on the Indian IT and ITeS industry.

Mr Manoli also said smaller companies, which cannot move into SEZs, need this advantage. Mr K.R. Girish, Convenor, CII Economic Affairs and Public Policy Panel, said IT companies generally want to have smaller centres in Tier II or III towns. He said it would be difficult for them to open these centres if the benefits are taken away. He added that IT companies have to pay a Minimum Alternative Tax (MAT) of 11.6 per cent.

The report said there seemed to be a consensus among the respondents that the expiry of the income-tax holiday would lower India’s attractive index as the cost of doing business would increase.

It also said the pressure would be comparatively high on the small and medium companies that may not be able to effectively leverage the SEZ scheme.

The IT industry has been demanding extension of the tax benefits under Sections 10A and 10B of the Income-tax Act, 1961. It was extended for one year and is due to end in March 31, 2010.

Mr Manoli said 41 new SEZs are being developed in Karnataka of which 30 are IT SEZs. Of these, 23 are being set up in and around Bangalore, while the rest would come up in the districts, he added. Karnataka accounts for about a third of the country’s total IT exports.

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