BUDGET EXPECTATIONS: Provide incentives for hardware manufacturing, VAT implementation!

The industry wants the Finance Minister Jaswant Singh to create conducive
conditions for ITES in his budget for 2003-04.

"There has to be encouragement for setting up ITES. With a vast pool of
qualified, English-speaking manpower, I do not see a reason why India cannot
become world’s back office. The growth in BPO segment would provide
opportunities to so many other allied industries as well," points out Ajai
Chowdhry, Chairman and CEO, HCL Infosystems.

Telecom equipment will play a major role in building up the infrastructure
for ITES and the telecom industry finds the duties far high in this segment.
Says Manoj Chugh, President, India & SAARC, Cisco Systems, "The level
of network adoption is a strong indicator of global competitiveness of companies
and countries. Cost-effective access to intelligent broadband networks is
pivotal to India’s strategy of becoming a superpower in the knowledge
economy."

Manoj Chugh, Cisco Systems Pramod Saxena, Motorola Vishwajeet Deshmukh, Network Associates Wants duties between 0 and 15 percent Demands abolition of SAD (Special Additional Duty) Wants the country to be competitive vis-a-vis China

Manoj points out that to ensure the availability of cost-effective networking
gear is hence an essential building block of success. To enable this, he wants
the FM to bring down the cumulative duties on networking equipment, currently at
39 percent, to between 0 and 15 percent in line with other ASEAN Countries.

The key objective of the National Telecom Policy 99 (NTP 99) was to ensure a
rapid increase in tele-density across the country and bring about the existence
of affordable services to all. "To achieve this objective the import and
other duties on telecom equipment and infrastructure, should be rationalized
downwards if not abolished completely," says Pramod Saxena, President,
Continental India, Motorola.

The telecom industry would like the Government to abolish SAD (Special
Additional Duty) altogether on cellular handsets as they aren´t made in the
country and rationalize the sales tax for it at 4 percent. As on date, total
impact of duties and taxes on handsets is at around 20 percent. This continues
to boost the grey market (which accounts for 70 percent of the sales), reduces
incentive for local manufacturing, results in lower revenues for the Government
exchequer and ensures sub-standard handsets for the public.

The Government is promoting Internet and broadband data/video services
through cable. The passing of the Conditional Access (CAS) Bill is testament of
its commitment. For CAS to deliver on its promise, the Government should reduce
import duties on cable and DTH set top boxes to 10 percent from the current 30
percent and bring parity among set-top boxes.

As of now the import duty on IT products is in the range of 40 percent. Along
with octroi duty at 4.5 percent and sales tax at 5.5 percent, the industry is
finding it difficult to offer products at competitive prices, leading to slower
sales and growth cycle for the product segment.

Points out Vishwajeet Deshmukh, Country Manager, SAARC and India, Network
Associates, "The overall tax incidence on IT products in the country varies
between 25 percent to 45 percent. This makes India less competitive to China
where the overall tax incidence is around 17 percent." Industry wants the
sales tax to be uniform across all states to overcome varying product prices,
affecting product competitiveness.

Atul Mehta, Compuage Infocom Leslie Lean, Ansata Computers Raj Saraf, Zenith Computers Sees VAT eliminating unethical practices Finds issues related to VAT still unclear Wants FM to provide incentives to State Governments for expediting VAT implementation

Industry leaders also want the FM to provide more incentives to hardware
manufacturing. They feel this is a segment that has been ignored all these
years. As a result, manufacturing projects are going to China and smaller
far-eastern countries. The industry wants drastic improvement in laws for
imports and export of raw material for IT products manufacturing.

The industry believes that introduction of VAT is a good move. Says Atul
Mehta, CMD, Compuage Infocom, "Introduction of VAT should eliminate filing
of multiple forms, for example, ´C´ and ´D´ forms. Moreover, VAT would
encourage ethical practices."

C Dhananjay, MD, Computer Factory, believes that VAT would avoid cascading
effect of various tax implications. However, he wants the CST turnover to be
VATable because currently substantial portion of partners’ business is by
direct billing from the vendor to the end-customer when it is an inter-state
billing and does not reflect in partners’ turnover.

But for Leslie Lean, MD, Ansata Computers, the issues related to VAT are
still not clear. Asks he, "Right now I’m not very sure about the
difference between the sales tax and VAT. How is the changeover going to happen
and how is it going to affect us? These issues are still unclear."

Raj Saraf, CMD, Zenith Computers, does not see VAT being implemented in a
hurry. Says he, "There cannot be India VAT and States VAT. To implement
VAT, India has to be one!" He would like the Finance Minister to provide
incentives to State Governments to expedite implementation of the VAT regime.

SYLVESTER LOBO