IT sector slams budget on ‘retrogade’ taxes

February 28th, 2011 - 9:59 pm ICT by IANS  

Bangalore, Feb 28 (IANS) The resilient IT industry Monday slammed the budget for 2011-12 for imposing minimum alternate tax (MAT) on Special Economic Zone (SEZ) units and withdrawing the tax holiday on export units, terming them retrograde measures.”Though the services sector has been lauded for its double digit growth, the imposition of 18.5 percent MAT on SEZs and withdrawal of tax holiday under section 10A/10B of the Income Tax Act will impact the industry growth,” Nasscom (National Association of Software and Services Companies) said in a statement.

As per the amended 2010 SEZ scheme, software export units set up till 2014 will continue go enjoy profit-linked tax exemptions under the proposed direct tax code (DTC).

“But the MAT at 18.5 percent with an effective rate of about 20 percent will negate the impact of profit-linked tax exemptions and act as a deterrent for small and medium IT enterprises,” Nasscom president Som Mittal asserted.

The budget has also ignored Nasscom’s request for extending the tax exemption on export units in the 2011-12 fiscal till the DTC was implemented.

The tax holiday should have been extended by one year so that software export firms could prepare for the new regime (DTC) and incentives that will be applicable for the services service in the new dispensation, Mittal said.

The IT industry’s representative body has decided to petition the government to reconsider the negative tax proposals before the budget is passed by parliament.

“Recovering from the impact of the tech meltdown in 2009-10, the Indian IT industry has been back on the growth path since the second half of this fiscal (2010-11) despite uncertain global environment and protectionist sentiments in key markets,” Mittal noted.

On the positive side, Nasscom welcomed the change in the policy on service tax refunds and transfer pricing that would simplify and reduce litigation.

“We hope the finance ministry will review every three months the implementation of the new provisions announced in the budget,” he added.

Wipro chief financial executive Suresh Senapaty also said the reversal of promised benefits for SEZ units by imposing MAT and dividend tax were retrograde.

“Imposition of MAT and dividend tax and 0.5 percent increase in MAT rate to 18.5 percent from 18 percent, which is already very high, are clearly retrograde steps,” the IT bellwether executive director said in a statement here.

Meanwhile, global chip maker AMD’s India managing director Ravi Swaminathan hoped the country would move away from an ad-hoc annual budget exercise to a long-term stable and transparent taxation regime to integrate India into the global supply chain.

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