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Centre may retain tax sop only for BPOs
By siliconindia
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Thursday, 13 December 2007, 18:24 IST
New Delhi: The Union government is likely to extend the Software Technology Parks of India (STPI) scheme beyond 2009 only to Indian information technology-enabled services/business process outsourcing(ITeS/BPO) firms reported Business Standard.
A proposal has been included in the 11th Five-Year Plan document, which will be put up for the approval of the National Development Council, headed by the prime minister, on December 19.
Otherwise, the BPO sector, which is a huge employment-generator may move to other countries, which are more cost-effective, the document cautions.
Under the STPI scheme, 100 percent tax deductions on profits under Section 10A and 10B are available only up to March 31, 2009. In the absence of such deductions beyond 2008-09, the companies will have to pay a normal tax of 33.99 percent.
"We are very excited about the development and are keen for a formal announcement," said Kiran Karnik, President, Nasscom (National Association of Software and Services Companies) reacting to the government?s proposal.
"The STPI scheme is most important for smaller companies and BPOs, both of which have been most affected by the appreciating rupee. These companies also cannot afford to shift to special economic zones (SEZs)," said Raman Roy, Chairman and Managing Director, Quatrro BPO Solutions.
Meanwhile the government is also planning to request to the IT companies to shift from dollar to rupee denominated contracts to benefit from the rising rupee.
"For every 1 percent that the rupee gained against the U.S. dollar, on an average, the companies witnessed an impact of 30-40 basis points on the profits," he added.
The rupee has appreciated 11 percent since January 2007, the fastest among major currencies, and is hovering around Rs 39.40 per dollar.
The Finance Bill, 2007, has proposed levying of Minimum Alternate Tax (MAT) on companies without eliminating the profits and gains eligible for deduction under Section 10A and Section 10B. MAT will be imposed at 11.33 percent on book profits computed in accordance with Section 115JA of the Income-Tax Act, 1961.
Nasscom has suggested that the levy of MAT on Section 10A and 10B profits be deferred unless a decision to extend the tax holiday beyond March 31, 2009, is taken simultaneously.
India has an estimated share of 65 percent of global offshore IT and 46 percent of global BPO business. In the year 2006-07 the size of Indian ITES industry was at $39.6 billion. According to analysts market for offshore BPO globally stands at $150 billion, and have chances for further growth.