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Budget Wishlist From IT Industry

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Anil Chanana, Chief Financial Officer, HCL Technologies
India's GDP growth rate is at its lowest in the last decade. Against this backdrop, it is absolutely essentialthat the Union Budget plays a major role in propelling the growth rate back to the levels of 8 to 9 per cent.

Information Technology is a key growth engine for the Indian economy and has played an important role in placing India on the world map, as a major knowledge based economy and outsourcing hub. In spite of the challenges, IT/ITES industry has showed buoyancy and managed to generate $100 billion in revenues, with exports amounting to $77 billion. Hence, Budget 2013 must include initiatives to further easethe challenges faced by the industry.

With this industry being one of the main-stay of exports and employment generation, it has become a necessity to continue the SEZ benefits. This clarity will pave way for further investments in the sector. Further, the over-crowded state of metros has necessitated the need to look at Tier 2 & 3 cities. Government investment on infrastructure in these cities and providing subsidy for the training facility for skill enhancement will be a positive step.

Introduction of MAT has significantly diluted benefits offered under the popular SEZ regime.Abolishing MAT levy on SEZ developers and units,together with the carry forward of MAT credit entitlement for an indefinite period would certainly be a welcome step. Then again, reasonable, stable and predictable regime on Transfer Pricing issues will go a long way in improving the competitiveness of the Industry.

Let us hope the upcoming Union Budget includes a slew of positive reforms that are a growth propeller for IT and other industries.

D
ebasis Chatterji, CEO, Netxcell Limited
Currently the general sentiment of the economy is very pessimistic as we are growing this fiscal year at what is called ‘Hindu rate of growth’ of around 5.5 per cent. This is the lowest rate of growth that we have seen in last few years. Therefore, it is time to rationalize the taxation structure especially in the income tax category, in order to enhance the total tax collection. It will also be good to see a cut in the non-planned expenditure to reduce the fiscal deficit. Overall I expect an industry friendly budget with less expenditure and more revenue that can induce momentum into the economy again.

Telecom has been the poster boy of reforms and liberalization as it has brought a lot of efficiency into the system through connectivity apart from creating millions of jobs both directly and indirectly. However, the industry is currently not growing as it was few years back due to various reasons. The Finance Minister should bring back cheer for this industry through some tax incentives apart from requesting his cabinet to reduce the burden of regulations. Once healthy, telecom industry could immensely contribute to the overall growth of the economy.

T. Srinivasan (Managing Director - India & SAARC) from VMware
"With the cautious outlook that prevailed for the most of 2012, the Indian IT industry was impacted with companies holding back on their spending. 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. The government announced its National Cloud Computing Initiative last year with the objective of optimally utilizing the infrastructure at government datacenters, 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 datacenters. We also hope that the government prioritizes and allocates investments for cloud computing for its projects that will help bring in efficiencies, control costs and benefit citizens. The IT industry needs to expand to Tier-II/III 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."

C V Subramanyam- Chairman and MD, Cigniti Technologies
The $100 Billion 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 future of Indian IT is in creating IP and the true value of R&D.
  • Litigations of transfer pricing and interpretation of taxes on IT services rendered including onsite services are counterproductive to the growth of IT industry. These bottlenecks can be overcome by simple transfer pricing norms.
  • Clarity on valuation and capitalisation of IP creation activities will reinforce the R&D done by companies like Cigniti which face a complicated tax credit mechanism.
  • Improved debt funding to IP driven SME segment within IT will substantiate IT growth including job creation. Imagine the tax collection for the government if the financial policy encourages the next Google or Facebook to emerge from India!

P. Venkatesh, Director - Innovation, Maveric Systems
There is an unprecedented level of gloom in the outlook of most economies. In terms of the global output, theseeconomies would cross the three-fourthmark. In this circumstance, it is essential that India seizes the opportunity and sends across the right message. The recommendations made here are in line with this thought.

General
What would be the critical, good steps to take?

1.   Announcement of a long term(minimum is 10 and preferably upto 20 years) fiscal policy that outlines the approach and milestones to be achieved during that term. Since it would take time to announce one such policy, one needs to set at least a three-year agenda in the budget so that the policy can be announced before its term.
2.   Generation of a public debate and consultative approach on all the key policies and milestones outlined in the long term fiscal policy before they are incorporated into the budget.
3.   A stable environment is key - which refers to setting and adhering to the principles/approach for laying down of policies. Any policy or revision needs to meet this touchstone before it is taken up for discussion.
4.   Establishment of an alternate dispute resolution forum that is to deal with all or specific key issues in a manner that is final and binding to all the stakeholders. It needs to be staffed and equipped in a manner that faster resolution is enabled.

Specific
1.   A  clear statement on the recommendations of Shome, especially with respect to:

a.  General Anti-avoidance Rule (GAAR)- the issues that need clarification are -
     i.   Are we subscribing to GAAR- it is a good practice to do this if we are committed to clean up the tax havens and tax avoidance?
    ii.   What are the fundamental rules that we subscribe to? GAAR is in the initial stages with just about 6-7 subscribing countries; one needs to examine the spirit and substance of this and agree on the fundamental structure of this.
    iii.  How would we implement this? This is a critical step having a global impact. It needs to follow the tenets of the good practice announced earlier.

b.    Retrospective amendments being limited to rare usage -This clearly meets the touchstone of stable environment. Any clarification of a new act, section or rule, if not made within the first 12 months of its introduction, should hold good with how it is interpreted by the consultative body, say a trade body or other associations. The government needs to be bound by this interpretation.
c.    Taxation of cross border acquisitions on seller than buyer - It is a universal principle of taxation that capital gains is on the seller. This cannot be reversed simply because the seller is beyond the reach of law.

2.   Clarifications on the transfer pricing rules so that there is no uncertainty in taxation - Thiscould be an enterprise like a holding andsubsidiary company or enterprises of the group without a formal financial holding.There are two broad segments of transactions - business and financial.Business transactions need to have a broad structure of permissible margins under the various accepted methods between any two countries,similar to what exists in typical double taxation avoidance (DTA) agreement. The financial transactions should have separate rates for 'from' and 'to' transactions between any two countries, uniform interests cannot be applied.

3.   Minimum Alternate Tax (MAT) for Special Economic Zone(SEZ) developers and units -This does not meet the touchstone of stable environment. The fundamental reason for investment in SEZ cannot be taken away for certain fiscal expediency reason, even when there is one and none exists now.

4.   Removal of Surcharge and Education Cess -These do not meet the touchstone of stable environment. These were introduced as an adhoc and temporary measure. They cannot continue or be reintroduced in some other form.

5.   Dividend received from entities overseas - Earning foreign exchange is a critical need. To this end where it is required that an entity be established in a particular market it is a very illogical and retrograde step to tax dividend from such entities.

6.    Institutional support for the stock exchange for small and medium enterprises (SME) by which public sector undertakings could invest a portion of their portfolio in that market. Employment generation is a vital need today which SMEs provide. They also serve a wide section of the economy irrespectiveof regionor class. It is therefore necessary that this segment is well enabled in terms of access to market, finance, management and support.

Conclusion
I hope that some of these find place in the coming budget. Even if they don't, it is hoped that our parliamentarians would pick some of these and generate discussions so that they can eventually find place in the Budget. Let it be thrown open to others outside the hallowed halls of Parliament. If you find merit and concur (even if not completely) with these, please generate discussions so that we rally for these in the coming budgets.
 
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Vishal Dhupar, MD, NVIDIA, Asia South
Today, India is recognised as a leading technology and business outsourcing destination worldwide. Despite a commendable showing on the global IT stage, India's investments in research and development (R&D) are abysmally low. We have 17 per cent of the world's population but we publish only 2.5 per cent of the world's scientific research. We spend a mere 0.9 per cent of our GDP on R&D - far behind countries like China and South Korea. 

On the one hand industries in India such as aerospace, defence, oil & gas exploration are striving to become globally competitive. On the other, India is attempting to secure its economic prosperity and tap into new sources of innovation and growth.

Cleary, we need to strengthen our R&D and build a sustainable research pipeline. Supercomputing is the way forward to achieve this and it is heartening to see that the Indian government has taken note of this fact.

The government has acknowledged the need to invest time and money in advanced R&D projects across key industries and strategic sectors. This is evident from its decision to double expenditure on scientific research in the 12th Five Year Plan.

Significantly, the government has also recognised the critical role that supercomputing plays in building a nation's research capacities. The fact that supercomputers make for energy efficient research should further add momentum to the government's supercomputing policy.  At the highest levels of the Indian government, there has been a definite thrust for augmenting India's supercomputing expertise to advance the country's growth capabilities.

We endorse and support the government's decision to build the world's fastest supercomputer by 2017.India certainly does not lack the experience and expertise to achieve this dream. However much depends on the availability of budgets, technology and talent as well as the presence of a robust research and technology ecosystem. We hope the government will make continued investments in nurturing talent and supporting the development of hardware systems that can drive India's supercomputing aspirations.

Last year the government also approved the National IT Policy, 2012, to leverage Information and Communication Technology in an effort to aid economic development. Amongst the key areas of focus, we are hopeful that the government will encourage innovation in R&D as well as explore the application of ICT for social sector initiatives across healthcare, education, financial inclusion and rural development. India has already emerged as a key hub for global research and product development initiatives and we expect that the government will continue to invest in ICT to further cement this position.
 
Arun Singh, Senior Economist, Dun & Bradstreet Information Services India
  • In order to ease the complexity in taxes and procedures, clear codification/transparency of transfer pricing regulation is expected. The government is expected to adopt an entrepreneurship mission under which the support and tax exemptions should be given to small companies to help ease business.
  • Software body NASSCOM has urged the government to withdraw the Minimum Alternate Tax (MAT) on SEZ units so as to help create conducive environment for the growth of the Indian IT-BPO sector. In FY12, MAT was increased to 18.5% on SEZ developers which resulted in a sharp deceleration in investments in SEZs. To boost development of SEZ units, the government can change the MAT rate to one-third of the corporate tax rates i.e., to 10 per cent.
  • The government is likely to abolish inverted duty structure, under which finished goods are taxed at lower rates than raw material for certain items like computer components and chemicals related sector. This move is likely to help revive the subdued demand and promote manufacturing in the country.
  • Ambiguity and lack of clarity with regards to treatment of software being goods or services has resulted in dual taxation (i.e. both Central and State taxes on supply of software) leading to additional burden on the industry. It is anticipated that all transactions pertaining to supply of software (whether customized or packaged software) should be treated as services irrespective of the media and mode of transfer with the assurance from the states that no VAT shall be applied on software.
  • Basic Customs Duty (BCD) likely to be exempted on certain hardware accessories like adapters, battery, laptop carry bags and speakers. Presently, products like laptops and peripherals are exempted from BCD. In order to maintain uniformity in sales tax rates applicable to the same products across the country, Manufacturers' Association of Information Technology (MAIT) expects the government to include Information Technology Agreement (ITA) products in the list of declared goods.
Ramesh Loganathan, Vice President Products and Center Head, Progress Software
This budget I expect to see continuing the measures taken earlier that will help stimulate the economy. We should be able to build on the fairly stable economic environment that was achieved in 2012. The budget should also retain measures towards growth and provide more opportunities for investments.

As part of the IT sector, our expectations are towards getting clarity on the transfer pricing and the procedures, how it is to be interpreted and processed. Currently the regulations for transfer pricing are a bit too non-deterministic and makes it difficult for any multi-national corporation with development labs or engineering operations in India to plan their investment and expansion strategies.

Suman Reddy, Vice President and Managing Director, Pegasystems India
The decline of the economic growth to the lowest in a decade is certainly a worrying factor. Monetary easing, policy directions on improving the investor sentiments, consensus on Direct tax code, GST etc all need an immediate push and a political consensus.

Our expectations from the budget are around 3 key things.

Transfer Pricing
: We’d like to see government rationalise the taxation and bring about more clarity on Transfer Pricing. Reducing the amount of litigation under various tax frameworks and creating transparency will certainly help with buoyancy and growth in IT sector.

Government Policies: The current Government policies for MNCs in India lack a structured framework. The industry need simpler procedures with clearly defined policy framework to help MNCs enter, establish and grow in India

Startup Incentives
: Innovative startups will drive the growth in the sector in near future shifting the dependency of the industry from the services domain. Startups should be given taxation and infrastructural incentives to allow them to grow at a faster pace and help them to stabilise the business especially in the first couple of years when they are in an early stage.