Budget 2013: What's in store for IT?

With the cautious outlook that prevailed for most of 2012, the Indian IT industry was impacted with companies holding back on their spending. The $100 bn IT industry has become a large component of India’s GDP and deserves attention to ensure it can continue to grow and contribute to the country.

The upcoming budget is an opportunity for the government to take some further steps to increase reforms across the board and shore up confidence in the economy and also stabilize the rupee. “Indian IT Industry will be hoping that the budget addresses some of the industry’s key issues like tax breaks,rationalization of transfer pricing guidelines,speedy clearance on backlog of service tax refund,roll back of retroactive amendments in the income-tax law and clarity on treatment of domestic delivery of software,” says Sanjay Dhawan, leader, technology, PwC India.

There are certain pain points which the industry faces and need serious attention in the union budget this time:

Tax, Tax and Tax!

Be it rationalisation of transfer pricing, tax breaks for R&D or concerns regarding corporate tax and income tax, industry is grappling with these and many more tax related issues.

Tax Breaks: For investment in research and development; tax breaks are what the industry has insisted upon for the past so many years. “I would prefer tax breaks for investments in R&D.

This would encourage Indian IT firms to invest more in R&D and products. This is essential for innovation, and is required both to get some non-linearity as well as to move up the value chain,” says Sudip Nandy, chairman, Aricent Group India. “Research and development benefit under the provisions of section 35(2AB) should be extended to entities engaged in sale and development of software,” explains Jagannadham Thunuguntla, strategist and head of research, SMC Global Securites.

Transfer Pricing : The government must continue the good work begun last year, where we moved to a negative list taxation regime for service tax purposes. This has led to overlap of VAT and service tax in certain situations. “The FM can look at alleviating this hardship and higher costs for customers as this is against the spirit of GST. The industry has been waiting for the GST regime and perhaps it is time for some provisions which advance the structure and spirit of GST, to be brought into this budget in the interim,” insists Rajat Jain, MD, Xerox India. “Litigations of transfer pricing and interpretation of taxes on IT services rendered including on-site services are counter productive to the growth of IT industry. These bottlenecks can be overcome by simple transfer pricing norms,” elaborates CV Subramanyam, chairman and MD, Cigniti Technologies. There should be clarifications on the transfer pricing rules so that there is no uncertainty in taxation, removal of minimum alternate tax (MAT) for Special Economic Zone developers and units is a must now,” insists P Venkatesh, director, innovation, Maveric Systems.

Income-Tax Law: “It may be needed to reiterate the clarity on Section 10A and 10AA allowing tax holiday for the units on the profits on onsite services. Movement of people inter-se units should not disentitle deduction under section 10AA,” explains Jagannadham Thunuguntla.

Investment in New Sectors

“This year we believe that the government will rigorously invest and promote investments in IT infrastructure. Emerging technologies like cloud computing, big data analytics will be further embraced,” says Sarv Saravanan, sr vice president & MD, EMC Centers of Excellence, India and Egypt. The government announced its ‘National Cloud Computing’ initiative last year with the objective of optimally utilizing the infrastructure at government data centers, and help speed up the development and deployment of e-Gov applications. “This year, we hope the government fast tracks this initiative and develops the frameworks and policies for all state governments to virtualize their data centers and prioritizes and allocates investments for cloud computing. The IT industry needs to expand to tier - 2/3 cities to cater to needs of Micro, Small and Medium Enterprises (MSMEs) and startup units, and the government should set up STPI Centers to help facilitate this,” explains T Srinivasan (MD, India & Saarc), VMware.

Control of Fiscal Deficit

The precarious global fiscal situation around the globe and adverse forex movement for Indian importers, make it imperative that government supports the industry with regulatory, tax and trade incentives. “Currently the biggest challenge in front of the government is to control fiscal deficit and corporate tax is the biggest revenue generator for the government. I hope just like last year they keep corporate tax same with no hikes introduced,” says SK Jha, MD and CEO, AGC Networks. “We can ill afford to lose the momentum gained in earlier years by not addressing the bottlenecks in our trade ecosystem, in turn allowing other fast emerging economies to capitalize on global opportunities,” informs Rajat Jain, MD, Xerox India.

Job Creation

We also need to substantially increase our spending on higher education, especially technological universities to encourage R&D, promote a culture of innovation, and improve the quality of skilled work force for the technology industry. “Improved debt funding to IP driven SME segment within IT will substantiate IT growth including job creation,” elaborates CV Subramanyam, chairman and MD, Cigniti Technologies. “With the GDP growth rate being pegged around 5.5% by different institutions, the budget announcements are likely to strengthen that rate. All this would ultimately impact job creation as that is one of the strongest indicator of the health of any economy,” says Kamal Karanth, managing director, Kelly Services India.

Boost for Manufacturing

The global electronics industry valued at $1.75 tn is the largest and fastest growing manufacturing industry in the world. Currently electronics hardware production in India accounts for a meager 1% of the global production, while domestic consumption of electronics goods is close to $50 billion and expected to rise to over $100 bn by 2014, and $400 bn by 2020. “India is one of the largest importers of oil and electronics. While oil imports is not in our control because of the scant natural resource, IT hardware is, provided the government could handhold the industry by way of creating conducive atmosphere and enabling manufacturing by removing some major policy hurdles,” says MAIT.