IT FIRMS AWAIT RELIEF

Jayati Ghose, New Delhi, February 16, 2009
The Telegraph

The government may extend the tax holiday scheme for IT and offer relief to their SEZs.

The global financial crisis has severely hurt this export-oriented industry.

Finance ministry officials said the government was considering a proposal to provide a full tax concession to units in SEZs (special economic zones) even if they were an arm of the parent company.

Currently, the proportion of the unit’s export earning to the parent firm’s revenue determines the exemption. For example, if the unit’s export earning is 50 per cent of the parent firm’s revenue, the exemption is on 50 per cent of the unit’s profit.

As major firms such as Infosys, Wipro and TCS did not set up their SEZ units as independent entities, only a small part of the profit was exempt.

“Changing the tax rule is likely to benefit the infotech giants which will be able to claim 100 per cent tax exemption,” the officials said.

Infosys has three notified SEZs, and Tata Consultancy Services (TCS) has one. Wipro has five and HCL Technologies, two.

Section 10AA of the income tax act proposes a complete tax holiday to SEZs in the first five years and a 50 per cent relief for the next 10. The twist is in Section 10AA (7), which is on the proportion rule.

In addition, the government is likely to extend the tax holiday under the software technology park of India (STPI) scheme. IT accounts for 5.4 per cent of India’s GDP and its revenues from exports alone are expected to touch $60 billion by 2010.

Companies in STPI are not taxed on revenues earned from exporting software, which includes writing programs for companies in the US and UK. There are more than 8,000 STPI-registered units spread across the country.

“We are hoping that there will be some positive announcements towards supporting IT exporters,” said Ganesh Natarajan, chairman of Nasscom.

Natarajan said he hoped the government would extend the STPI scheme. Besides, to boost domestic demand, there should be a greater thrust on e-governance.

Some analysts, however, said that the tax holiday allowed Satyam to fudge its account books. It would have been difficult for the company to cheat, if it had paid taxes at regular rates.