India’s software exports which accounts for 75% of overall revenues generated by IT-BPM sector has been growing at CAGR of 8.5% during FY 15-FY19 period. With changing market dynamics and increased competition in the BPM sector IT sector policy advocacy group NASSCOM has prescribed number of fiscal measures to improve India’s position in the market.
Extension of Corporate tax of 15% to newly incorporated companies in SEZ (special economic zone)
Nasscom wants IT services not to be placed in disadvantageous position in comparison with manufacturing since ITBPM sector contributes 54% of India’s GVA (Gross Value Added) and employs about 34% of the workforce. Promoting IT-SEZ will ensure India has a competitive edge IT services. It would also help India compete with other countries, which offer a competitive tax regime to attract investment. China provides 15% corporate tax rate for Advanced Technology Enterprises including companies in the IT- BPM space and Philippines provides a tax holiday for 6 years from the start of operation.
Extension of Sunset clause under sec 10AA of Income Tax for another five years
About 58% of the operational SEZs in India relate to IT/ITeS/electronic hardware/telecom equipment, it is reflection that the SEZ policy has been an important driver of growth for the IT- BPM sector and an important enabler to attract additional investment in the sector. Removal of incentives available to SEZ units have impacted investments, In 2012,the government withdrew the MAT exemption that was available to units in SEZ. Post that, between July 2012 and January 2015, 15000 hectares of land was de-notified. Currently, out of 417 units formally approved, only 349 units are notified and only 238 are operational.
Expand scope of utilization of SEZ re-investment reserve created under sec 10AA to include all expanses of capital nature
Nasscom sites sub clauses of the sec 10AA as restrictive for technology companies as they don’t have significant investments in capital goods, unlike traditional manufacturing businesses. As a result, SEZ units are forced to forgo tax holiday available for the 3rd block of 5-year period (i.e., for year 11-15).
Extension Service Exports from India Scheme (SEIS) for another five years
Since its introduction SEIS has provided a huge fillip to the service industry and has significantly strengthened its backbone by providing the much-needed financial support. Now, IT-BPM sector is witnessing significant growth opportunities, technology disruptions coupled with global competition from countries like Philippines, China etc., are also presenting challenges for the sector. Continuation of SEIS would be critical for Indian exporters to retain their competitive advantage. Further, there is a need to expand the current scope of eligible list of services to include new emerging technology services such as Augmented Reality (AR), Virtual Reality (VR), Internet of Things (IoT), etc.
Allow set off of past unutilized Minimum Alternate Tax
Nasscom is concerned about high level of unutilized MAT credit in IT-BPM sector, opting for lower tax rate regime would require such companies to write off unutilised MAT credits, which would affect their profitability. This would disincentivize IT companies, particularly companies with operations in SEZ, to move to the new tax regime. Companies would only be willing to adopt the new tax regime only when accumulated MAT gets exhausted.