Budget support for Indian IT & ITeS sector mooted

 The US$71.7 billion industry has strong fundamentals of a large talent pool, sustained cost competitiveness and enabling business environment have helped India sustain its position as a preferred sourcing destination. 

However, the KPMG Tax Team feels that the industry needs support from the government in the forthcoming budget as the global recessionary trend is now beginning to impact the performance of the industry.

Besides, India is also facing competition from other emerging nations like Vietnam, Brazil, Russia, China, Malaysia, Philippines, etc and our cost advantage is eroded.  with regard to the cost advantage offered.  KPMG Tax team has prescribed the following incentives to the IT/ITES industry. 

Extension of tax holiday
The income-tax holiday under section 10A/10B (relating to STPIs/ EOUs) of the Income-tax Act, 1961, has been a blessing for the industry and has played a pivotal role in driving the success. The benefit is currently set to expire on 31 March 2010 but it is essential that the fiscal support continues for another 3 to 5 years, especially for the small and medium sized companies so that the cost competitiveness is maintained. 

Government SEZs
The SEZ scheme is not very well suited for the small and medium sized companies because of lack of the optimum scale of operations. The Government could look at setting up of a few Government-owned SEZs, especially for the small and medium sized companies. 

Refund of taxes & duties
The industry looks forward to expeditious disposal and simplification in the procedures for claiming refund of service tax paid on input services. Alternative schemes such as fixing drawback rates may be introduced which would help in simplifying the procedures, felt KPMG. 

Service-tax & VAT
At present both service-tax and VAT are being charged by the tax authorities on development and sale of software in India. It is essential that this controversial issue of dual taxation is resolved at the earliest.

Refund of additional customs duty to countervail VAT: Credit and refund of additional custom duties paid on imports is available to manufacturers and traders.  This benefit is not available to service providers and should be extended to service companies.
 
Allocation of funds
The government should also allocate funds for increase in IT spend to provide a strong domestic stimulus to the industry. It should developed public-private partnerships to accelerate already approved e-governance programmes and evolve appropriate new programmes. The government must also spend on appropriate skill development to meet the increasing demand of resources in the industry.

There is a need to implement a nation-wide skill development programme and leverage IT expertise both for enabling education and imparting employable skills that can be deployed in the industry, said KPMG Tax Team.