Dial ‘S’ for Super

The

good news is that while this Budget will continue to provide a fillip to

software exports, it will also not tax e-commerce. Moreover, this Budget

provides for increase in e-governance and with changes in ADR/GDR conditions,

has already brought cheer to the stock market.

One of the laudable aspects of the Finance Bill is the provision for

educational loans for students which is part of the overall impetus to IT

education across the country. This will also secure the future of many

youngsters in India. Acknowledging the need for skilled manpower both at home

and abroad, the government has not only expanded the number of IITs (by adding

Rourkee to the list), it has also decided to upgrade existing regional

engineering colleges.

Further, in order to encourage private sector participation in the IT

education process and in order to enlist the monetary help of this segment in

promoting centers of higher learning in the country, the government has decided

to offer 100% tax exemption to contributions to engineering institutions. This

will further encourage software companies and Nasscom to contribute to and fund

engineering colleges.

For those who were looking out for a drop in computer prices, disappointment

was in store. While the finance minister reiterated the government’s

commitment to reducing duties on all IT products to zero by 2003, he only cut

the duties marginally. As excise rates have now been harmonized at 16%, no

reduction of excise rates on computer systems was possible. However, I wish the

prices of computers were brought down to a level which was within easy reach of

the masses. If today or in next few years, all duties, excise and sales tax are

removed on computers, they can sell for Rs 15,000—20,000. What is good,

however, is the news that e-governance projects are on the anvil this year (with

computerization of customs and passport offices being planned), which will

create major opportunities for Indian hardware and software vendors.

The finance minister, as in previous years, was extremely soft on the

software sector, offering concessions the market had been asking for. A major

plus was clarification of exempting on-site services from income tax with

retrospective effect. Almost 60% of India’s software exports are through

on-site services. In the year 2001—02, of projected software exports of $6.24

billion, almost $3.7 billion will be through on-site services. Also, the finance

minister has allowed an income tax holiday to those listed companies that get

acquired.

The finance minister has now allowed Indian companies with ADR/GDR listings

to invest in overseas stock up to $100 million or 10 times their export revenue

of previous year, without any prior approval. Although I still don’t

understand why prior approval is required, the good news is that the new limit

is quite impressive. If we study the top software exporters, then with the new

provision, they can plan to acquire overseas companies to the extent of $3—5

billion without any prior approval.

While the finance minister has been very kind to the software sector, he has

tried to mop up some money from those companies which were in EOU and STP units

but were selling in the domestic area. He has also taxed some of the domestic

IT-enabled services like online information and database retrieval services.

This is not good news for the domestic market. Domestic IT-enabled services are

still nascent and thus would have been more ready to pay service tax in another

2—3 years. However, the export of IT-enabled services has been spared from

income tax.

Once again, this has been a great Budget for the software sector. The

hardware issues need to be resolved and probably will be taken care of in the

Exim policy. After all, ‘S’ denotes both Sinha and software superpower.

Dewang Mehta is president, NASSCOM