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Pune
March 1, 2007
Dwarfing all items represented on the IT industry's list of budget
expectations this year, was the extension of tax holidays available to software
and ITeS (IT enabled services) exporters registered under the STP (software
technology park) scheme beyond the year 2009, to bring the tax benefits on par
with those available to SEZ (special economic zone) units. The same has not been
addressed at all.
Additionally, a provision to impose minimum alternate tax (MAT) to IT
companies is going to hit the IT companies hard. It effectively means that there
would be no deduction on account of exempt incomes under these sections from
book profits for the purpose of computation of MAT. Even the effective rate of
MAT has been raised from 7.5 per cent to 10 per cent. The proposal is very
discouraging.
Increase in DDT
Dividend Distribution Tax (DDT) has been raised from 12.5 per cent to 15 per
cent. The proposal is damaging for the Indian IT sector that is already losing
foreign direct investments to other emerging markets. DDT should have been
scrapped as it is in the nature of double tax on the same income, first in the
form of corporate tax and second, in the form of DDT on the amount distributed
in the form of dividend.
Increase in the DDT effectively raises the corporate income tax rate. Foreign
investors would shy away from Indian corporate sector with such proposals.
Service tax on commercial rent
Service tax has now been levied on commercial rent. The proposal is very
damaging for IT sector as bulk of software companies operate from leased
premises. They also hire on rent residential accommodation for their outstation
employees. The proposal is likely to inflate the overall cost of operations
quite significantly.
The finance minister has announced the allocation for education to be
enhanced by 34.2 per cent. However, the education system needs more help then
what has been provided.
Today, our academic system is not at all market responsive. We see a talent
shortage of 500,000 by 2010. Our system is what the British left us 60 years
ago. We perhaps need radical changes into our education system. We need lot of
investment into it and perhaps a good public-private partnership model is a
requirement of the hour. Today, China with 1.3 billion population, has 1300
universities and with a strong 1.1 billion Indians, we just have 350
universities!
Nothing substantial has been done to increase qualitative investment into
infrastructure. China spends 9 per cent of GDP on infrastructure, India 4 per
cent. One per cent additional investment means an increase of $75 billion.
Further, an increase in investment always have a multiplier effect -for every
rupee invested, Rs 4 of GDP is generated.
The provisions from the budget have left lot to be desired and we wish the
Honorable finance minister would have a relook.
Lalit Lahoty
(The author is director – Rapidigm - a Fujitsu Consulting Company.
The views expressed here are personal). Page(s) 1
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