NEW DELHI: Presenting the federal budget for fiscal 2003-04, Finance Minister Jaswant Singh said the government would restore the tax concessions extended to the IT sector under Section 10 A and 10 B of the Income Tax Act. "IT is India's showpiece success story. We have to not just maintain its momentum of growth, but continuously encourage it," Singh said. The government, in its budget for 2002-03, had reduced the tax holiday for software exports to 90 percent from 100 percent for units in software technology parks. The software industry had protested the move, charging the government of going back on an earlier commitment of a 10-year tax holiday to the sector in 2000. The software industry Friday cheered the government's decision to retain full tax exemption, saying it would help the Indian IT sector to maintain its growth momentum despite the prevailing downturn in the global technology market. "Overall, the budget is IT friendly and we are extremely pleased that the government has restored its earlier commitment," said Arun Kumar, chairman of the National Association of Software and Service Companies (Nasscom). "The government has taken a long term approach to support the industry which has consistently contributed to the growth of the Indian economy." The industry also welcomed the budget proposal to extend income tax benefits even in the case of mergers, de-mergers and shareholding change in any software company. "This concession will help the small and medium sector to compete with the big ones," said Pavan Kumar of vMoksha Technologies, a software development and services company. "This was undoubtedly one of the big hurdles in the way of mergers and acquisitions among the small and medium companies," he added. "We will definitely see a lot more mergers and acquisitions happening." Currently, as per the provisions of section 10A and 10B of Income Tax Act, if more than 51 percent shareholding of a company, registered with special export zones, changes hand, then the company ceases to get tax exemption. The government also announced removal of excise duty on pre-loaded software. This was introduced last year in month of July. "This will positively impact prices of computers, which will fall by 500 to 600," said Vinnie Mehta, executive director of Manufacturers Association for Information Technology (MAIT). Agreed Kiran Karnik, president of Nasscom. "We welcome the government's move to exclude excise duty on pre-loaded software that will help reduce software piracy in India. "Pre-loaded software, which was bundled with hardware, was subject to excise duty and the doing away of the same will encourage computer adoption in the country." The finance minister reduced the customs duty on optical fibre cables, used widely for networking to provide bandwidth to the IT industry, from 25 percent to 20 percent. "The customs duty concessions for the optical fibre cable industry is a good move," said N. Janakiraman, head (technology solutions) of MindTree Consulting, a Bangalore-based IT solutions company. Says N. Seshagiri, former director general of National Informatics Centre: "The concessions on optic fibre cable will make bandwidth cheaper. It will lead to more video conferencing and several other multi-media applications like video on demand and video clipping services." The budget also reduced customs duty on a number of capital goods used by the telecom and IT sector for manufacture of components from 25 percent to 15 percent. India's booming IT industry has managed to hold its own against the old economy in terms of sops announced in the annual budget in the last few years. A host of overseas firms such as General Electric, British Airways, Cisco Systems and American Express outsource their software services and back-office operations to low-cost centres in India. This has helped the industry to log a 29 percent growth in software exports to $7.5 billion in the fiscal year ended March 2002 over the previous year. This compares with just $1 billion worth of software exports during 1996-97. "Coupled with the lowering of the customs duties on capital goods imports, the steps announced in the budget are definitely positive for the IT industry," said Pramod Khera, managing director of Aptech Ltd. "This should boost the software exports as well as provide a push to the spread of IT in the domestic industry." The computer hardware industry, however, expressed disappointment over the government decision to retain the 16-percent excise duty on IT products. "It is really disappointing. The most important agenda for the hardware sector was reduction of excise duty on IT products from 16 percent to eight percent," said Vinay Deshpande, former chairman of MAIT. MAIT, the hardware industry umbrella group, had urged the government to bring down the excise duty to eight percent to counter the grey market, which accounts for over 50 percent of the total computer market. "The reduction would have meant computer prices dropping by about 5 percentage points, a very significant reduction for a price sensitive market like India," said MAIT.
Source: IANS