Why does the IT industry need tax exemptions?
Samir Sachdeva | March 2, 2010
When the whole IT industry was talking Business First, there was one man who spoke about Nation First. When the whole digital media was speaking the language of their sponsors (Nasscom and IT companies), Governance Now was one portal which spoke for the whole nation. Both N.R. Narayana Murthy and Governance Now said that the Software Technology parks of India (STPI) scheme should not be extended. And Finance Minister Pranab Mukherjee has not announced the extension of the scheme which will end in March 2011.
Nasscom president Som Mittal has said there is still one more year for scheme to end and the industry will take up the issue with the government again.
But the question is: why does the IT industry need tax exemptions? According to Nasscom, the Indian IT-BPO industry are expected to reach $49.7 billion in 2009-10, a growth of 5.5 percent. The top 50 IT companies contribute to 60 percent of these revenues and 90 percent of the profits. With such volumes and profits, does the industry actually need such tax benefits?
Another argument is that the benefits will help the small and medium enterprises (SMEs) in the IT sector. But the STPI scheme is meant only for the export-oriented units and the key exporters of software from India are the Big Five - TCS, Wipro, Infosys, HCL, and Mahindra Satyam. So, the benefit goes to whom?
Moreover, majority of the STPI units are falling out of the STP scheme as they have already completed their 10 years of exemption, so on whose behalf are the lobbyists asking for an extension?
Also, after an initial stimulus to the IT industry, the government is now looking for planned growth. Its policy of carving out Information Technology Investment Regions (ITIR) will not shape up, if the IT units continue to operate as STP units. With the growth in the industry the IT units have to now grow as IT SEZs and ITIRs and therefore a sunset to STPI scheme is even more important.
It is estimated that the government will earn approximately Rs 20,000 crore in corporate tax if it does not extend the scheme. The opportunity cost of this Rs 20,000 crore can be imagined by all and needs no debate.
So, the IT companies must decide if it is Business First or Nation First for them.
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