Small and medium IT firms disappointed with budget

February 29th, 2008 - 10:35 pm ICT by admin  

A file-photo of P. Chidambaram

Hyderabad, Feb 29 (IANS) Small and medium IT enterprises Friday were disappointed with the 2008-09 budget, saying it has not extended the Software Technology Parks of India (STPI) scheme that offers them various exemptions and had also increased the excise duty on packaged software. “It does not have anything for the IT industry. It is disappointing for the small and medium enterprises, which had some expectation from Finance Minister P. Chidambaram,” said Shakti Sagar, convenor, IT panel at Confederation of Indian Industry (CII), Andhra Pradesh.

The small and medium enterprises (SMEs) were expecting that the STPI scheme, which has been offering them various exemptions, including 10-year income tax exemption for exports, would be extended beyond 2009, he said.

The sunset clause under Section 10A/10B of the Income Tax Act of 1960, exempting IT firms registered with STPI from corporate taxes for 10 years, expires March 31, 2009.

“We have not heard anything on STPI scheme and this means that it will not be extended,” he said.

Sagar said the SMEs, which account for 60 percent of the total IT industry, would be hit hard.

Under the STPI scheme, the SMEs have been using the single-window system to get various approvals. The companies registered with STPI could also set up their units anywhere in the country.

If the STPI scheme is not extended, all units currently located in STPI will have to shift to IT special economic zones (SEZs). Sagar said no SME could afford to move to SEZs.

Only the big IT companies are moving to SEZs to avail various tax exemptions being offered by SEZs.

Non-extension of STPI scheme may hit 3,000 SMEs in Hyderabad alone. These units, with a turnover of less than Rs.10 million each, employ over 50,000 people.

Hyderabad Software Exporters’ Association (Hysea) feel that the SMEs would be badly hit as they spend 55 percent of their revenues on salaries. If the concessions are withdrawn, many units might be forced to shut down.

“Excise duty on packaged software being increased to 12 percent from 8 percent is bad news for SMEs. There is no mention of STPI in the budget, which is must for software SME export,” said Debasis Chatterji, director, Netxcell.

“I believe that our finance minister does not even remember that an industry called IT, which has positioned the country high in the global arena, is even there in the country. There is absolutely nothing to make us feel we even exist and we are looking towards him to provide that impetus against the rising rupee, huge hike in input costs including manpower salaries and the ever rising resistance to outsourcing,” said Amit Kishore Prsada, founder and MD, Satnav Technologies.

The absence of tax holiday extension has disappointed even major companies. Satyam Computer Services Limited, the country’s fourth largest software exporter, termed the budget as ‘disappointing’.

V. Srinivas, chief financial officer, Satyam, told newsmen that this could increase tax on profit of the company from 13 percent (2007-08) to 20 to 23 percent (2009-2010). “However, from 2011 the tax may come down to 14 to 15 percent as by then much of our business will be dealt from our special economic zones, which offer some tax concessions,” he said.

“We still have a full year before the sunset clause comes into effect and the IT industry can try to convince him to extend the same,” he said.

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