Software piracy caused tax loss of $866 Million in FY09

Tuesday, 31 May 2011, 15:45 Hrs
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New Delhi: Indian government may have lost nearly $866 million in taxes to software piracy in 2009, a study said today.

With software piracy rate at 65% (more than six out of 10 computer software installed were not paid for) in 2009, the exchequer tax receipts loss was about $866 million in net taxes, both indirect and direct, a joint study by BSA-IDC said.

"Software piracy is a unique crime as most of illegal and unlicensed usage of software occurs in otherwise legal and legitimate businesses, depriving government of legitimate taxes from software sales and distribution," IDC Asia/Pacific Research Manager (AP Consulting) Harish Taori told reporters here.

Business Software Alliance (BSA) is a software industry body working in 80 countries to expand software markets. Its members include Adobe, Apple, HP India, Microsoft and Symantec among others. IDC is a global IT research firm.

According to the study, indirect tax receipts from software sales would have contributed $553 million, while services-related business transactions and direct tax receipts would be around $313 million in 2009.

The study found that in 2010, IT companies paid nearly $3.04 billion to state exchequer in tax. By 2014, the tax receipt is expected to grow to $5.7 billion with IT spending expected to grow at a CAGR of 15% until 2014.

According to IDC estimates, losses of over $2.27 billion was caused in 2009 on account of unlicensed software sold in India in 2009 (with piracy of packaged software at 65%).

The total impact in 2009 would then come to about $3.13 billion for 2009, BSA India Committee Chair Keshav S Dhakad said.

"High rates of piracy in India results in a lot of value erosion, which in turn affects the entire value chain from distributors to traders to resellers and hampers job creation in the areas of sales, marketing, distribution, maintenance, development etc," Dhakad said.

He added that there was an urgent need to facilitate the creation of a strong intellectual property compliance and accounting governance model in companies to account for usage of genuine and licenced software as part of their internal and external audits.

The study said that if PC software piracy is curtailed by 5% in 2011, the incremental potential industry revenues or the GDP contributions could be $790 million, tax revenue could be $95 million and 26,108 new high-skilled jobs could be created.

"The millions of dollars being lost in taxes to the state due to software piracy if checked, could lead to re-investment in critical developmental projects for the country," Taori said.

The need of the hour is to put in place some strong regulatory mechanisms to prevent software theft leading to these tax losses, he added.

Taori said countries like Greece and Italy have declared usage of unlicenced and pirated software in companies as a form of tax evasion and similar steps should be taken in India.

"The government tax inspectors, external and internal auditors need to be empowered to check and account for genuine software licenses inside organizations, whether public or private," Taori said.

Companies should declare genuine software licenses in their books of accounts and financial statements, he added.
Source: PTI
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