The Hindu Business Line : IT vs I-T: Spare tech from tax

IT, as in information technology, has been the key engine for innovation. We expect the Finance Minister to use I-T, as in income-tax, sparingly on this industry.

S. Mahalingam

The Budget preparation process is a lot more challenging this time even to the politically savvy Finance Minister, Mr Pranab Mukherjee.

Popular expectations are high since the electorate has delivered a strong verdict in favour of the Congress party and the Finance Minister has the luxury of not having to pander to populist sentiment.

However, it does not mean he can curtail spending. International community expects India (like China) to kick-start the global economic recovery. Additionally, there are demands for security (in view of terrorist attacks) and infrastructure development.

Therefore, Fiscal Responsibility and Budget Management (FRBM) has to be thrown to the winds and fiscal deficit will run high even without “populist” measures. How large the gap will be is the only question.

The Finance Minister needs to see that the deficit does not lead to de-rating of India, which will result in curtailing funds inflow from overseas. India needs to attract investments — both direct and portfolio — from overseas.

Priority areas

Therefore, while I do not want to burden him with new demands, I feel that he needs to have the following priorities for IT:

Remove the uncertainty on 10A extension. The sunset clause was extended by one year up to March 31, 2010 and a strong case has been made by the industry for extending the period.

There is dire need to focus the energies of the industry on demand generation as well as make investments in developing higher value added services.

Amend Section 10AA so that the intended tax benefits of software export units operating from special economic zones (SEZs) are actually given to eligible organisations.

Avoid two levels of taxation on software sales. Currently, e-delivery of standard software is subject to VAT as “goods” and under service tax as “services” at 4 per cent and 10.3 per cent, respectively, uniquely making it bear two taxes, which was not the intention.

There is ambiguity on applicability of service tax on standard software when it is imported, and the intention clearly was not to levy service tax in this case.

Fund programmes for improving city infrastructure, air, metro, link roads to IT parks, satellite townships and digital connectivity.

This is the need of the hour for improving operating efficiency and cost management.

Initiate innovative models to improve the higher education system. We need investments to upgrade existing institutes and open new ones with partnership from Government, industry, and other world class educational institutions.

Enhance the level of automation in Government. We need a digitisation drive beyond 3 per cent of budget allocation to departments for computers.

These should be spent on meaningful programmes that improve citizen-government interfaces.

Financial market infrastructure

Manage current account to mitigate an unstable exchange rate regime. Incentives for export as well as invisibles are necessary to get the surplus up to its earlier trend levels.

We also need to track employment levels of Indians overseas to keep up the flow of remittances at higher levels.

Accelerate the reform process by further strengthening the financial market infrastructure. Further development of corporate bonds market as per the recommendations of the Patil Committee.

Development of currency and derivatives market for spot and derivative transactions in currency, interest rate and credit risk, energy derivatives market, etc. IT will play a large part in the creation of these markets.

Formulate schemes to access rural areas and thereby promote inclusive society. Promote delivery of banking and other financial services (including insurance) to the disadvantaged and low-income groups through technological innovation, use of mobile/rural kiosks, or even post office connectivity as medium of delivery.

Allow higher exemption limits (up to Rs 3 lakh) in permissible deductions on housing interest to the salaried class.

Employees of the software export industry have been driving the growth of the housing industry in key towns.

In times of lower hike in salaries, this will give an impetus and provide a much needed boost to the housing sector. IT, as in Information Technology, has been the key engine for innovation.

We expect the Finance Minister to use IT, as in Income Tax, sparingly on this industry.

The author is CFO & ED, Tata Consultancy Services.