Top IT companies give away more to taxman

By siliconindia   |   Wednesday, 21 November 2007, 08:00 Hrs
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Mumbai: Top Indian software companies are making a bigger contribution to the government. Frontline software companies have seen a significant increase in their tax rate over the previous year, going by their September quarter results. TCS, Infosys Technologies, Satyam Computer and HCL Technologies have seen taxes taking away a larger share of their profits in September 2007, compared to the same quarter in the last year.

Wipro lowered its tax outgo in this period, due to its mix of IT and non-IT businesses. The tax rate for these companies now stay close between 10 and 15 percent of their profits, compared to 8-13 percent last year. For over 2,000 listed companies of India, it averaged 30 percent in the September quarter.

Infosys, which has seen its tax rate increased from 11.7 percent in September 2006 to 15 per cent in the latest quarter, attribute this primarily to a higher proportion of revenues generated onsite.

Revenues and profits generated from onsite services are taxable in the respective countries. This could also explain the increase in tax outlay for top-level companies such as TCS, Satyam or HCL Tech. Over 50 percent revenue of the frontline companies is generated from onsite work. As companies move up the value chain, this proportion may be expected to increase, unless such services are offshored.

Tax rate for all of the IT majors are expected to edge up in future, as the tax shelter on operations out of software technology parks (STPI) are phased out. Both Infosys and TCS have indicated that as the current STPI scheme and its attendant tax benefits cease from 2009, the tax incidence may go up. All these companies are looking to move operations to SEZs (Special Economic Zones) and have indicated that tax rate could be in the 20-22 percent range, during the conversion phase.

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