The Hindu Business Line : Industry sees gains for small, medium biz

Bangalore/Chennai, April 29 The Finance Minister’s announcement on a proposal to amend the sunset tax clause to extend by one year the tax holiday to software companies under the Software Technology Parks of India (STPI) scheme evoked mixed reactions among industry experts. While some felt the relief was temporary, others said it would give companies more time to plan their moves.

Mr P. Chidambaram, while replying to a debate on his Budget proposals in Parliament, said tax exemptions have been extended to March 31, 2010. This has to be ratified by both the Houses.

Mr S. Nagrajan, Co-founder and Chief People’s Officer, 24/7 Customer, said given the intense competition the BPO industry is facing from other countries, the benefit is only a short-term one. A longer term extension for a minimum of five years or more would have a significant positive impact on the industry.

But Mr V. Sundarajan, Chief Financial Office, Aztecsoft Ltd, said the move would help small and medium enterprises. At present, demand for space in SEZs is very high because many companies are looking to shift to a SEZ. The extension would help stabilise this market, he said. Also, the companies would get an additional year to plan their move, and it would help to postpone their investments, he added.

Mr Balakrishnan, Chief Financial Officer, Infosys Technologies, also agreed the move would benefit the small and medium sized companies who are finding it difficult to move into SEZ space due to lack of availability of SEZ space as well as high rental costs.

Nasscom welcomes

The National Association of Software and Services Companies, in a statement, said it would benefit BPO companies and the small and medium segment, which have been greatly impacted by the rupee appreciation, inflation and signs of slowdown of US economy.

Mr Subhas Menon, Founder Chairman, Managing Director and Chief Executive, Subex Ltd, agreed that the move is a positive one, but said it is not adequate. He said it would be of some help to the companies and would give them some more time to plan their move into an SEZ.

Mr Rostow Ravanan, CFO, MindTree Ltd, said technically-speaking, the Minister had only made an amendment to the Finance Bill, which will become a law after the Parliament approves it. However, the company was happy about the announcement, although a longer extension would have been more welcome, he added.

The extension of Software Technology Parks of India (STPI) tax holiday scheme by one year is “positive news” for IT and BPO industry, say industry experts. Income from domestic software must have a similar tax structure as the software that is exported. This will ensure that software products and services would come to Indian companies at a competitive price. This will in turn make them compete better with foreign players, Mr Arun Jain, Chairman and CEO, Polaris Software Lab Ltd, said.

According to Mr Bharat Varadachari, Partner, Global Tax Advisory Services, Ernst & Young, the extension of the tax holiday applies uniformly to all classes of STP units. However, the SME (smal and medium size enterprise) segment, which faced difficulty in recent times in sustaining revenue growth; containing attrition and spiralling wage costs or in accessing tax efficient alternatives to the STP scheme, will get some respite at least until 2010.

While the extension may be a conscious short term measure by the Government, it at least paves the way for a possible further extension in 2010, he said.

More Stories on : Taxation | Industry Associations | Software

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