The information technology industry’s survival instinct is its biggest driving force. When the Government decided to put an end to the sunset clause, most thought it would be very difficult for the IT industry to absorb.
True, it was. But the industry has quickly devised methods to reduce effective tax rates. And the immediate focus for small and big firms is to increase presence in the special economic zones (SEZs).
Engineering services firm Infotech has found that for every 300 associates it deploys in SEZs, it could get a tax reduction of one per cent. In the first half of this fiscal, its effective tax rate came down by 2 per cent on this count. In the first half, it paid tax of Rs 52 crore.
“We have a special focus to expand operations for new business into SEZ facilities. The total SEZ office space and leased is about 1.30 lakh sq. ft, with a capacity to house about 1,500 associates,” B. V. R. Mohan Reddy, Chairman and Managing Director of Infotech Enterprises, told Business Line.
As of now, about 10 per cent of 10,000 employees are deployed in SEZs. By the year-end, the SEZ space would go up to 2.25 lakh after expansion in Hyderabad and Bangalore.
Mahindra Satyam too could reduce the effective tax rate by 2 per cent in the just concluded second quarter as it stepped up its SEZ focus. “We are able to reduce it to 25 per cent in the second quarter as against 27 per cent in the same quarter last year,” Vasanth Krishnan, Chief Financial Officer, said.
The board has approved investing Rs 500 crore in infrastructure development. C. P. Gurnani, the Chief Executive Officer, hinted that a large chunk of it would go to SEZs. “We will spend Rs 30 crore every month. We are seeking to add 3,500 seats after we exhaust the budget,” he said.
NIIT Tech, whose SEZ units became operational last year, has lined up Rs 220 crore of investments to develop the SEZ space. In phase one, it spent Rs 175 crore to develop 3,000 seats, according to Piyush Srivastava, Executive Vice-President (Commercial).
“The SEZ provides enterprises and developers with incentives such as 100 per cent income-tax exemption for a period of five years and an additional 50 per cent tax exemption for five years thereafter,” he said.
“We recently opened a new 300-seater facility in Pune SEZ to take advantage of this,” said Manu Parpia, Managing Director and Chief Executive Officer of Geometric Ltd.
No big benefit for small firms
However, Farid Kazani, Group Chief Financial Officer and Finance Director of Mastek, said the SEZ route is of not great benefit to the small units as relocating the Software Technology Parks of India operations to SEZs is not allowed. “As a result some smaller companies have not been able to migrate to SEZs,” he said.
“We have invested close to Rs 45 crore in an SEZ in Chennai. Although skeletal operations have begun there, we are finding it difficult to scale the unit due to high costs of power, transportation and attrition,” Kazani added.
(With inputs from Ronendra Singh in New Delhi and Rajesh Kurup in Mumbai)
Keywords: Information technology industry, survival instinct, when Government put end to sunset clause, IT industry devised methods, reduce effective tax rates, small and big firms, increase presence in special economic zones, SEZs