Business Today

Little cheer for IT industry in Chidambaram's Budget 2013

Finance Minister P. Chidambaram has ignored most of the IT sector's direct tax requests in his budget for 2013/14.

twitter-logoGoutam Das | March 1, 2013 | Updated 13:56 IST

India's information technology industry has little to cheer. Finance Minister P. Chidambaram has ignored most of the sector's direct tax requests in his budget for 2013/14, presented on Thursday.

For instance, the sector had been asking for companies located within Special Economic Zones (SEZs) to be exempted from paying Minimum Alternate Tax. There was no mention of this in the Finance Minister's budget speech.

"Indeed, two proposals in the Finance Bill actually work against the IT sector," says K.R. Sekar, Partner with Deloitte Haskins & Sells. To attract new investment and speed up project implementation, the Finance Minister has introduced an investment allowance for new high-value investments in manufacturing, but ignored IT.

Companies in manufacturing which invest Rs 100 crore or more in plant and machinery will be entitled to deduct an investment allowance of 15 per cent of the investment.

The second negative relates to Section 80JJAA of the Income-Tax Act. Sekar said: "IT companies could claim 30 per cent deduction of additional wages paid to new employees. The new proposal nullifies this section and this deduction is now applicable for manufacturing of goods in a factory."

There is encouraging news for the technology hardware sector, though.

The government, it appears, is committed to promote chip manufacturing, an area where India is far behind countries such as Taiwan and China. Experts in India have been pointing to the country's huge electronics import bill.

"We recognise the pivotal role of semiconductor wafer fabs in the ecosystem of manufacture of electronics," Chidambaram said in his Budget speech. "I propose to provide appropriate incentives to semiconductor wafer fab manufacturing facilities, including zero customs duty for plant and machinery."

The other hardware piece is the "encouragement" for domestic production of set top boxes. The Finance Minister proposed to increase import duty from five to 10 per cent. Though well-intentioned - it is meant to keep Chinese and other Asian players at bay - it could easily backfire on consumers.

Kiran M. Vivekananda, Regional Manager of Corporate Planning at HCL Infosystems, said that India is not ready to manufacture set top boxes, and if import duties are higher, service providers would pass them on to consumers.

The technology industry, nevertheless, could benefit indirectly from many of the other initiatives proposed.

"We believe a lot of the key initiatives outlined will leverage technology at the core," Rajesh Janey, President of EMC India & SAARC, noted in a media statement. Among the initiatives he highlighted were banking norms compliance, ATM expansion, transforming post offices and the textile sector, and rolling out Aadhaar-enabled payments for various government schemes.

"All of these augur well for the local IT industry, and will improve competitiveness of industries and significantly enhance service delivery," he said.

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