Nasscom reiterates demand for tax incentive

Tuesday, 31 December 2002, 08:00 Hrs
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NEW DELHI: Nasscom has reiterated its demand to the Government on the proposed withdrawal of Tax incentives u/s 10 A / 10 B of the Kelkar Committee. The alternatives proposed in the revised report are a step forward from the initial consultation paper and Nasscom is glad to note the Committee's acknowledgement of some of the special circumstances facing the industry.

However, Nasscom felt that neither alternative meets the needs of the industry and would infact be a setback. Kiran Karnik, President, NASSCOM said, "We urge the Government to retain the full Tax exemption under section 10 A/ 10 B as originally envisaged."

"While we appreciate and support the committee's thrust towards simplification of the tax system and the extensive use of IT in the administration, we strongly oppose the withdrawal of the Tax incentives u/s 10 A/B. The Government had declared a "no tax" regime for software exports upto 2009 and the industry requests it to abide by the same, " he added.

Karnik said, "The repercussions of this proposed withdrawal of an announced policy (viz. tax exemption upto 2009) extend beyond the software/IT sector, as all other assurances/guarantees by the Government will be seen as doubtful and subject to sudden change.

In the software sector, both Indian and foreign investors have made investments and business plans on the basis of the 10-year tax-free commitment. Going back on this will be grossly unfair and will seriously hurt not only future investments, but also present players."

"The 10-year period was clearly intended to give the industry time to mature, so that the country could harvest the fruits of its growth. The software industry has delivered and done the country proud. It is well on course to achieve the target of over $ 50 billion exports by 2008, if it is not suddenly de-stabilized by pulling the rug under its feet", Karnik further added.

The Indian software industry has faced the global economic slowdown and shown its resilience by registering a 29% export growth in 2001-02. However, many of the SMEs have been hit hard and as they struggle to survive and look ahead to better times, a tax at this stage would adversely affect their existence.

Government and tax policies, combined with the skills and management acumen of Indian corporate, put the Indian IT Industry on the Global IT map but this particular action of the Government will also put Indian companies in an extremely unfavorable situation to grow further through acquisitions of key foreign companies as most acquisitions are through stock-swap.

Such "inorganic" growth can help to accelerate Indian dominance of the software space. Any adverse change in the tax regime will certainly immediately hit market valuation of Indian companies, and decrease their ability to acquire companies. Also, since a very substantial amount of the market capitalization in Indian markets is accounted for by IT companies, there would be a very serious impact on share price indices.
Source: IANS
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