Software piracy caused tax loss of Rs 3,900 cr in 2009: study

In a significant finding, a study has claimed that the government suffered revenue losses of $866 million (about Rs 3,900 crore) in 2009 on account of the high rate of software piracy in the country.

Businesses, who are otherwise legitimate, use software on a large scale but they evade paying tax when they are not buying licensed software, thus causing a big loss to the state exchequer and disruption of the domestic software eco-system, says an International Data Corporation (IDC) whitepaper, 'Software Piracy in India', released here.

Despite the growth in the Information Technology (IT) sector, substantial value in form of potential revenues is lost due to software piracy. With a software piracy rate of 65% in 2009 (more than six out of ten PC software programmes installed in 2009 were not paid for), the study finds that only one-third of the overall PC software revenues are captured by the industry incumbents and the rest are lost to software piracy.

Consequently, in 2009, the state exchequer tax receipts loss was approximately $866 million in net taxes, both indirect and direct, it notes.

According to IDC estimates in the study in 2009, 65% software piracy of packaged software caused a loss of commercial value of unlicensed software totalled over $2.27 billion causing the domestic economy to lose $5.3 billion of software, services and channels revenues to software piracy.

Consequently, the state exchequer tax receipts loss was roughly $866 million at the current piracy and employment levels, as the industry lost its otherwise legitimate share of revenues to pirates, the paper has stated.

The rising usage of computers and Internet in India year-on-year, and ICT taking centerstage in being a business enabler plus a driver of innovation and governance, it is important for the Indian govern met to curb software piracy levels in order to harness the full potential of the IT industry, the paper says.

According to the study, reducing software piracy will stimulate spending throughout the IT value chain. Because of software's unique role as a revenue generator for local service and distribution companies, three-quarters of the benefits generated by reducing software piracy are enjoyed by the domestic economy.

"These findings make clear that there is a direct correlation between reduction of software theft and economic benefits to the government and the domestic economy.  The millions of dollars being lost in taxes to the state due to software piracy if checked, could lead to re-investment in critical developmental projects for the country, a necessity for high growth economy like India."

"The need of the hour is put in place some strong regulatory mechanisms to prevent software theft leading to these tax losses", said Lizum Mishra, director, BSA India, adding that in some countries usage of unlicensed & pirated software in companies has already been declared as a form of "tax evasion".

To curb the levels of piracy IDC and BSA have, among other things, proposed that Indian tax laws should  be amended to classify software piracy as a form of tax evasion and define corresponding tax violation rules on the lines of international best practices and empowering government tax inspectors, external and internal auditors to check and account for genuine software licenses inside organisations, whether public or private limited.