Rise in MAT to impact software firms
Small and mid-size outsourcing companies function from STPI units and tax benefits under the STPI scheme are getting phased out in 2010-11.
By ET Bureau |
MUMBAI: The budget was negative for the export-focussed outsourcing industry but a positive for IT firms focussed on the domestic market. The much anticipated mirroring of SEZ benefits for STPI units did not come through. In addition, the rise in MAT from 15% to 18% will impact the industry, especially small and medium size software firms.
Small and mid-size outsourcing companies function from STPI units and tax benefits under the STPI scheme are getting phased out in 2010-11.
Most large outsourcing firms have set up in SEZs and will not be impacted significantly. "I am very disappointed. There was no mention of mirroring of SEZ benefits for STPI units," said Ashank Desai, chairman of Mastek Ltd.
The mirroring of SEZ benefits for STPI units was one of the demands of the software industry. Exports from SEZs are eligible for exemption for a period of 15 years in all -- 100% of profits are tax exempt in the first five years, 50% in the next five and 50% in the last five years provided the profits are invested in specified areas. "The top 50 software companies contribute 60-65% of the revenues of the industry and 90% of the profits. When they grow their business, they will grow into SEZs.
Many of their older units have already come out of the tax benefits offered under STPI because they are over 10 years. It is the smaller firms that have set up STPI units in last few years that will be hit though the government will not gain much in terms of tax inflows," said a Nasscom official.
However, IT companies focussed on the domestic market will gain from the IT mission mode projects announced in the budget. The thrust given to computerisation in government departments such the income tax department and the focus on increasing citizen services will benefit small IT and BPO firms focussed on the domestic sector. Large IT firms such as HCL Infosystems, Wipro Infotech and Tata Consultancy Services, which are active in government projects, will also clearly benefit.
Refunds for IT/BPO companies have also made easier. Oover Rs 4,000 crore refunds are pending and just last month there were some changes made to make refunds easier. The budget gives it further filip.
Small and mid-size outsourcing companies function from STPI units and tax benefits under the STPI scheme are getting phased out in 2010-11.
Most large outsourcing firms have set up in SEZs and will not be impacted significantly. "I am very disappointed. There was no mention of mirroring of SEZ benefits for STPI units," said Ashank Desai, chairman of Mastek Ltd.
The mirroring of SEZ benefits for STPI units was one of the demands of the software industry. Exports from SEZs are eligible for exemption for a period of 15 years in all -- 100% of profits are tax exempt in the first five years, 50% in the next five and 50% in the last five years provided the profits are invested in specified areas. "The top 50 software companies contribute 60-65% of the revenues of the industry and 90% of the profits. When they grow their business, they will grow into SEZs.
Many of their older units have already come out of the tax benefits offered under STPI because they are over 10 years. It is the smaller firms that have set up STPI units in last few years that will be hit though the government will not gain much in terms of tax inflows," said a Nasscom official.
However, IT companies focussed on the domestic market will gain from the IT mission mode projects announced in the budget. The thrust given to computerisation in government departments such the income tax department and the focus on increasing citizen services will benefit small IT and BPO firms focussed on the domestic sector. Large IT firms such as HCL Infosystems, Wipro Infotech and Tata Consultancy Services, which are active in government projects, will also clearly benefit.
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Refunds for IT/BPO companies have also made easier. Oover Rs 4,000 crore refunds are pending and just last month there were some changes made to make refunds easier. The budget gives it further filip.
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