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Extension of software tech park scheme tops IT industry's wish-list

Moumita Bakshi Chatterjee, New Delhi, The Hindu Business Line

February 21, 2011


Will it or won't it - this is the billion dollar-question. For the $59-billion IT-BPO export industry, which is gunning for 16-18 per cent growth next fiscal, the extension of Software Technology Parks (STP) scheme clearly tops the wish list for the Budget.

The tax holiday available to STP units under Section 10 (A) of the Income-Tax Act is slated to come to an end this fiscal.

The industry has already been through two extensions -the STPI clause was originally slated to lapse on March 31, 2009.

But now that the Direct Taxes Code (DTC) is unlikely to be implemented before April 2012, the industry is hoping that eligible units under the STP scheme will continue to get sops till the new code comes into effect.

“It will ensure that there is no gap between demise of profit-linked incentives (under the STP scheme) and introduction of investment-linked incentives (under the DTC),” says Mr Raju Bhatnagar, Vice-President at software association Nasscom.

Some in the industry have a slightly different take on continuation of sops. Infosys Technologies, for instance, has spoken specifically in favour of introduction of tax breaks for smaller tech companies.

Speaking to Business Line, Infosys CEO and MD, Mr S. Gopalakrishnan, had stated that although there have been indications that STPI benefits may not get extended, the Government must look at stimulating smaller companies. Such focused support to small companies, he had opined, could either be made in form of tax breaks for few years, say 2-3 years, or through tax breaks till certain threshold revenue is achieved (by the companies).

Today, the operating model varies - a lot depends on just how many units are under STP scheme and how many under SEZ scheme. Hence computing an average for the entire industry may be bit of an aberration; instead company specific numbers offer a better insight.

Apart from the STP demand, the industry has also flagged the prevailing high incidence of MAT and suggested that this rate should not be more than one-third of the normal tax rate.

MAT is currently at almost two-thirds of the normal rate and this, according to the industry, has skewed the scheme of taxation.

Industry watchers say that while MAT credit can be carried forward and set off within 10 years, the companies eligible for tax holiday are already carrying substantial MAT credits accumulated over the years, with concerns on ability to avail this credit under the DTC.

Transfer pricing

Other major demands pertain to simplification of procedures and a clearer interpretation of law, especially with regard to issues such as transfer pricing, service tax refunds, dual taxation on packaged software.

“There needs to be connect between the intention of the Government and the implementation of its instructions by the field offices. In certain cases such as service tax refunds, we have seen ground-level disconnects… the mechanism to do this effectively is for the Government to decide,” Nasscom's Mr Bhatnagar points out.