Budget fails to bring cheer to IT sector

Faced with a double whammy of imposition of MAT on SEZ and withdrawal of tax exemption under Section 10A/10B, the Indian IT sector today expressed its disappointment with the Budget 2011-12.

"The SEZ units set up till 2014 were to continue to get profit-linked tax exemptions. Imposition of MAT at 18.5% takes the effective tax rate to nearly 20%, which nullifies the impact of any such incentive," Software representative body Nasscom President Som Mittal said.

This will be a deterrent for small and medium companies, which are looking at expanding in the SEZ scheme, he added.

Union Finance Minister Pranab Mukherjee today announced to reduce surcharge on corporate tax to 5% from 7.5% on domestic companies and simultaneously increased Minimum Alternate Tax (MAT) to 18.5% of book profits from 18% on developers of Special Economic Zones as well as units operating in SEZs.

"Also, we had requested the government that since the DTC will come into play from 2012, the tax exemptions under section 10A/10B should be extended by one year," Mittal said.

Software Technology Parks of India (STPI), which offers tax exemption to export-oriented units on profits under Section 10A and Section 10B of the Income Tax Act, was extended by one year till March 2011 in the Budget last year.

"Overall, it is a good budget, but the FM could have given more focus on the IT sector. There is nothing new for the IT sector in the budget proposal, apart from the reduction in the tax on revenues from foreign subsidiaries of the Indian companies," Tata Consultancy Services Chief Financial Officer and Executive Director S Mahalingam said.

Slow economic recovery in the US and European countries, pricing pressures in the domestic market and protectionist policies in the US are some of the issues the Indian IT players are facing.

However, the BPO sector also expressed disappointment.

"For an industry, which has created a major portion of the urban employment, there were no announcements. Also, the inclusion of SEZs under MAT will impact our cash flows," Genpact President Genpact President and CEO Pramod Bhasin said.