The Indian IT sector is hoping that the Narendra Modi government will address the tax-related issues of IT exporters, incentivise creation of start-ups, aid SMEs and address issues around the import of hardware components.

The immediate concern among IT companies is with respect to the increasing import of electronics components, which is expected to surpass oil imports by 2020. Given that the design centres of most of the device/semiconductor OEMs are in India and in view of the tough and competitive global market, it may be appropriate to incentivise greenfield investments (both domestic and global companies) in India, said PN Sudarshan, Senior Director, Deloitte in India.

While the UPA government did take some steps by coming forward with a national policy on electronics, industry watchers feel that it needs to be strengthened. According to MN Vidyashankar, President, IESA, setting up of an Electronic Commission and implementation of policy measures to enable the country to attain global competitiveness is the way forward.

While this is at the macro level, there are several issues on the ground that need to be looked at immediately, for existing manufacturers. Several components used in the manufacture of IT hardware, such as motherboards, memory modules and graphic cards attract a 14.4 per cent import duty. However, the effective rate of excise duty on the manufactured finished product is 10.3 per cent. “If the excise duty/ CVD rate is restored to 12 per cent, the effective rate of duty on imports will be 16.48 per cent, with the manufactured finished product attracting 12.36 per cent,” according to Indian hardware body MAIT.

With increasing demand for tablets and computers, the industry body is also asking the government to reduce the rate of duty applicable on indigenous manufacture of laptops and tablets. It also wants an expeditious introduction of GST.

Software challenge Another big challenge is in the area of software products, where some Indian software product companies have broken away from Nasscom and started their own think tank.

Currently, software products are unfairly taxed as both goods and services, says Sharad Sharma of iSPIRT, the think tank. In other words, a loose definition has caused companies providing software products to face two levies, which is akin to double taxation. Deloitte’s Sudarshan agrees and says that this is because they do not fall under the traditional definition of products, something that needs to be resolved.

Vishnu R Dusad, CEO of Nucleus Software, says that this industry, if it grows even modestly at 10 per cent, could be worth $100 billion, equivalent to the current size of software exports, by 2020.

Start-up push With India seeing a proliferation of start-ups, the government has been doing its bit to encourage this ecosystem. But a lot still needs to be done. Industry watchers feel that there are too many ambiguities in norms relating to angel investments in start-ups, introduced in 2012.

Also, the government has to realise that India needs to increase its intellectual property and intellectual capital space vastly and very quickly to stay relevant in a global knowledge-based economy. “Tax holidays or preferential tax treatment should be given for start-ups filing for patents in India and abroad,” said Antony Alex, CEO, myLaw.net, a Mumbai-based start-up.

Software services Finally, the $100 billion software services sector wants some key issues sorted out. Industry body Nasscom is seeking clarity on the impact of royalty payments on software (both retrospective and on services), elimination of the Minimum Alternate Tax on SEZs, and resolution of issues around taxation related to testing services and transactions between head and branch offices. It also wants renegotiation of tax treaties, cross-border transfer pricing adjustments, introduction of a consolidated income-tax filing for Indian MNCs, a relook at notified safe harbours, and clarity in transfer pricing assessments.

Also, the growth of IT being mostly in large metros, the industry insists that the time has come to move to smaller towns. Alok Sinha, Country Manager-India, at Xchanging, believes that the government should work to uplift education in small towns, which could feed the demand for quality talent in this sector.

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