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Indian IT Industry Hits Out At New Taxes

by Mary Swire,, Hong Kong

09 March 2011

The Indian information technology industry has expressed its "disappointment" on the Union Budget Proposals 2011-12 which will result in Special Economic Zone (SEZ) firms paying higher taxes.

"The services sector was lauded for its double digit growth rates, but the fastest growing services industry, IT-BPO faced double negatives – imposition of MAT on SEZ and withdrawal of tax exemption under Section 10A/10B," stated Nasscom, the Indian information technology and outsourcing association.

"The SEZ Scheme was announced as an act of Parliament and only last year it was clarified that under Direct Tax Code (DTC), SEZ units set up till 2014 will continue to get profit linked tax exemptions. Imposition of MAT (minimum alternative tax) at 18.5% with an effective rate of nearly 20%, nullifies the impact of any such incentive. This will be a deterrent for small companies," the association warned.

Nasscom requested that tax exemptions under section 10A/10B should be extended by one year, so that companies can prepare for the new Direct Tax Code regime and relevant incentives as applicable for the services sector can be introduced under the DTC.

"While the industry has performed well, the uncertain global environment still continues and protectionist sentiments in key markets are concern areas. Inflation is increasing the burden on employee costs and small companies need a supportive policy framework. It is disappointing that the government has not considered the needs of the small and medium enterprises. Nasscom will urge the relevant ministries to reconsider this decision before the budget is passed by the Parliament," the association stated.

Nasscom was pleased, however, that there were some "positive" announcements related to service tax refunds and transfer pricing aimed at simplification and reducing litigation. "It is important that the implementation framework and clarity on applicability is announced on these schemes, so that a clearer policy framework can emerge. We hope the Finance Ministry would review every three months the implementation of the new provisions announced."

TAGS: tax | business | India | tax incentives | commerce | budget | China | e-commerce

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