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Stability in policy environment, reforms and improving ease of doing business are still the biggest demands of the IT and IT-enabled services (ITeS) sectors from the Budget.
While the Centre has taken some positive steps in the past, such as signing the landmark framework agreement with US revenue authorities to resolve transfer pricing disputes in the sector, a lot more needs to be done to improve things on ground, experts say.
“IT/ITeS players are still reeling under arbitrary adjustments by transfer pricing officers, primarily driven by indiscriminate choice of comparable data.
“Tax authorities at the lower level still need to appreciate the nuances of assessing the risk profile of a company so that it gets appropriately benchmarked,” said Naveen Aggarwal, Partner-Tax at KPMG India.
The Centre needs to ensure that such amendments are implemented in the right spirit and do not give rise to fresh litigation, Aggarwal added.
Big bang reforms“As always, we are likely to be disappointed at the lack of big bang announcements and reforms. Part of that is the maturing process of the nation’s economy, where it is not necessary that all big bang reforms are announced at the time of the Budget,” said Partha Iyengar, VP & Gartner Fellow, Country Manager Research (India), Gartner.
He added that the Centre needs to make a strong statement regarding stable policies, where continuity of direction is assured.
“A key step was taken with the taxation issue. This needs to be extended and the business community across the board needs to have comfort that there won’t be massive (sometimes draconian) reversal of direction of key policies,” Iyengar said.
The industry is also seeking a simplified tax structure to improve the overall business environment.
On the IT hardware manufacturing front, the industry wants a tax structure similar to that of mobile manufacturers, to boost local PC and PC component manufacturing.
Budget 2016 measures can potentially generate 400,000 jobs in the IT manufacturing sector, if the estimated demand for 30 million PCs per annum is fulfilled entirely through domestic production over five years, said the Manufacturers’ Association for Information Technology (MAIT).
Said Lenovo India MD Rahul Agarwal: “At present, one of the biggest hurdles the sector faces is the non-availability of an affordable component ecosystem, and unfavourable tax structure, causing higher costs for local manufacture of PCs. Following the success of duty differential for smartphones and tablets, there is also a pressing need to introduce the same for PC manufacturing. We are also hopeful that the government will roll out GST and simplify the tax regime.”
“In order to avoid confusion in litigation and unwarranted harassment by Customs officials, a convergence cell must be formed wherein classification of new IT products should be decided within 30 days of representation,” said MAIT Executive Director Anwar Shirpurwala.
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