Budget 2012-IMPACT ON IT/ITES SECTOR

The budget 2012-13 disappointed many as it has no fresh proposals for the USD 100 billion Indian IT-BPO sector even as the industry's request to exempt SEZ income from Minimum Alternative Tax has been ignored. 

The IT/ITeS industries have added 7.96 lakh jobs in the Indian economy during the one year period ending September 2011, according to the Economic Survey 2011-12. However, FY 2011-2012 witnessed a drop in hiring in the IT industry while ITeS remained robust with a rise in the number of jobs. 

According to the Timesjobs.com RecruiteX Quarterly Report (Jan-Mar 2012), the IT industry index dropped 13 points compared to the 5 point rise in the overall index. ITeS, on the other hand gained 17 points in the same period. The ITeS industry weathered the slowdown with a strengthening of the business in the domestic market.

Thus the budget should have focused on to bring back business confidence. The key area of focus for the IT sector in the upcoming budget should have been the stabilization/ rationalization of taxes so that these funds can be used for R&D and also retaining the talent in the company. From an indirect tax perspective, a clear-cut and rational timeline for the implementation of Goods and Services Tax was hoped for in this Budget

The budget is disappointing on various accounts

1) There is no focus on putting the economy on a high growth trajectory. Fiscal deficit reduction is through higher taxation, rather than expenditure management.

2) There is no roadmap on implementation of the Direct Tax Code and Goods and Services Tax. Issues of tax simplification, litigation too have not been addressed

3) The minimum alternate tax (MAT) introduced in the last Budget is adversely impacting the viability of investments already made, but this has not been removed.

4) Transfer pricing litigation and lack of clarity has been a major burden for the sector. The finance minister has announced introduction of the advance pricing agreement (APA) from next fiscal. However, APA is a long drawn out process and it is not clear how the current issues will be resolved. Transfer pricing regulations have now been introduced for domestic transactions, further increasing the complexity.

Here is a compilation of expert view on the impact of union budget on IT/ITES sector-

Hanuman Tripathi, Group Managing Director, Infrasoft Technologies Limited:

The Finance Minister has announced no benefits for corporates. With global downturn, IT sector should have been given some benefits so as to boost the segment. The increase of service tax from 10 percent currently to 12 percent will cause further burden. Delay in GST implementation is merely increasing problems. There is a commitment of government to IT enable several sectors like LPG distribution, payments for government schemes and continued investments in Aadhar (UID) which is heartening to note as it will create more projects in domestic IT business. All in all, the relevance of doing Annual Budgeting exercise by putting so much of government focus and expenditure is increasingly getting lost as no substantial landmark changes have come forth in budgets for years now; something that will boost corporate performance or bring prices down in the country.

Richard D’souza - CEO, Melstar Information Technologies:

The increase in the service tax rate is definitely a mood dampener for the IT industry but it may not have a significant business impact as users of IT services are essentially companies in which such services are being increasingly used in mission critical applications.