Taxes hinder Indian IT exports to Japan

Friday, 20 December 2002, 08:00 Hrs
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BANGALORE: Failure to resolve a taxation issue appears to be thwarting enhanced software exports from India to Japan.

The issue relating to the 20 percent tax that Japan levies on technology and services is unlikely to be resolved soon, given the fiscal deficit and an unsighted economic recovery, in spite of some progress after Prime Minister Atal Bihari Vajpayee's visit to Japan earlier this year.

"At this point of time, given the state of the Japanese economy and fiscal deficit, it may not be possible for Japan to remove the tax of 20 per cent on technology and services," Toshiba Corporation Advisor Isamu Nitta told an India-Japan business meet here.

"It was reaching a stage of resolution after Prime Minister Vajpayee took it up with his counterpart during his last visit. It cannot lie in limbo like this. It has to be resolved in the interest of both the countries," added Wipro chairman Azim Premji.

They were participating in a discussion on information technology at the 31st joint meeting of the India-Japan business cooperation committee.

"The difference of interpretation between the two nations' tax authorities on the wording of the (bilateral) treaty whether software development should be categorised as service or product stays as before without any change," Nitta said.

"It is causing a lot of confusion and lawyers on both sides are getting richer. It is a complete waste of time. We have, in fact, paid sometimes or not paid sometimes depending upon the contractual obligations," Premji said.

The imposition of this tax by both India and Japan makes Indian software services that much costlier, though the advantages of Japanese companies using Indian software are tremendous.

Indian software exports to Japan account for just four per cent against Europe's 24 per cent. The U.S. is the biggest market for Indian software and services at 62 per cent. Last year, Indian software exports touched $7.8 billion.

"I don't see any reason why software exports to Japan should not touch 15 to 20 per cent by 2004. Japan has a shortage of skills. Indian companies also need to address the cultural and language issues when offshore outsourcing is gaining acceptance in Japan," Premji held.

Both sides agreed there was immediate need for trade organisations in India and Japan countries to put pressure on their governments to resolve the issue.
Source: IANS
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