The Budget has struck a harsh note with the Indian IT Industry. Even as the tax benefits available under the STP scheme are slated to end by March 31, 2011 (after two extensions), the industry is up in arms over the proposed imposition of MAT on units in the Special Economic Zones (SEZs). While the stage is set for a fresh round of appeal to Government for reconsideration of these issues, Business Line caught up with the Nasscom President, Som Mittal, to discuss the contribution of the STP scheme to the software sector during the formative years and the way forward for this $60-billion export industry. Excerpts:

Looking back, what would you say was the biggest contribution of the STP scheme to the industry's success in the global marketplace? Are there similar schemes in other countries?

To start with, the fundamental difference between STPI and SEZ is that SEZ is a zone and you are forced to go there. In the case of STPI, I can open a company in my backyard and still operate. Just look at where companies such as Infosys and MindTree started. You could start at a small location and all you had to do was put the security processes in place and say it is a bonded area. And you were up and running! It allowed entrepreneurs to mushroom without hassle. In most countries, there are special locations or zones (for IT), but I really don't think anyone thought of a scheme like STPI where you created zones in every street and every colony.

And they did a great job! The Government should be proud of the institution they created to support the industry. When some critics say that the IT industry has grown in spite of the Government, I think that is wrong. One of their big achievements was to make it easy for the industry to operate…STPI formed that single point of contact, they would welcome you. The relationship between STPI director and the company was very strong.

And now that tax incentives are going away…

We loosely tend to use the term STPI benefits. STPI is an organisation and those units that were registered in STPI got benefits under section 10B (of Income Tax Act). But besides that, the STPI also had the authority as the agency to whom we reported our revenue…they did the Customs clearances on goods that were imported. That role has not changed, as we understand currently. In the initial years the STPs did two more things. First, they became incubation centres and they were also giving us connectivity because, at that time, if you remember, VSNL was the sole provider (for telecom connectivity)…So they (STPI) took a large pipeline and we used to buy the bandwidth from them. Those were early years and helped us in many ways.

What are the two big advantages that the STPI still offers, sans the tax benefits. Or does it?

Well, it is still about single-point clearance. And the other point is this whole area of Customs clearance, bonding-debonding and so on….Because you are dealing with an agency that has been authorised by the Government to do it. And they understand the business model, because STPIs have a built-in knowledge, accumulated over years of working with the industry. So STPI still adds value. It is still a single-point contact, they do the clearances, and you do not have to deal with multiple agencies. Over time, people will evaluate what are the hassles, advantages, etc. No one will move out of an STPI, they will say I ‘debond' my unit but they will not change the physical location.

What will be the next move by Nasscom to ensure that the industry continues on its growth path, especially since it has outlined 16-18 per cent export growth target for next fiscal.

We appreciate that STPI was given for a finite period, and Government was gracious to extend it by two years. It would have been nice if there were no break (between the end of STPI tax incentives and start of Direct Tax Code), and we do hope they will reconsider it…but it is only for a year.

Our major issue today is on the Minimum Alternate Tax (MAT). It is not so much about the percentage or quantum, but what message are you giving to the world? There were certain ground rules, that you would get benefits of 15 years. The SEZ scheme came out in 2006, and it clearly said no MAT. It was a specific benefit given. Now you (Government) are changing the rule. I think it is a wrong message to give.

So we are saying if MAT has to come, it should mirror what is in the Direct Taxes Code. The DTC said that all new units that come up in SEZs up to 2014 will still continue to get benefits. Therefore, for all the companies that come into the SEZs by 2014, there should be no MAT.

>moumita@thehindu.co.in

Related Topics
comment COMMENT NOW