Budget 2012: Indian Technology expect Tax Exemption SEZ News
The technology sector set their target to cross $100 billion mark this year with $69 billion from exports and $32 billion from the domestic market. This shows a healthy increase of around 16 percent over last year's growth though there were some events like the anti-outsourcing bill in the U.S. and the euro zone crisis which had an adverse impact on the sector.
It is estimated that if this global crisis persists it will give a bad impact on the Indian technology sector as a number of events are running simultaneously with other developing countries. Indian technology sector is going under a pressure of higher wage bills, high attrition, linear growth (direct link between sales growth and headcount addition), uncertainties surrounding SEZs, skyrocketing real estate prices, the write-off of large technology contracts due to cancellation of 2G licenses by the Supreme Court.
Last but not the least, the huge transfer pricing adjustments leading to potential high tax outflows and routine rejection of service tax refund claims made by transfer pricing officers are adding fuel to the fire.
The industry was expecting a lot from the budget 2012, but when the finance minister presents the budget a huge number of eyes got disappointed. So it can be concluded that industry can not expect more from Budget 2012. Even it seems that the finance minister, during his current five-year tenure, will not be able to take another opportunity after this.
Given the background, what would this sector look from the budget document? A slew of tax measures such as:
– Extension of tax holiday: To make a good position in the competitive international market and to boost the export industry, a number of inspiring stapes has been taken for the Indian Technology Sector. One of them is "Extension of tax holiday" for a period of 10 years which has expired on March 31 last year. To continue this motivation an extension of tax holiday for further five to ten years has been made.
– MAT on SEZ income: At the time of introducing the SEZ concept in India, government promised to give lots of advantages to attract domestic as well as foreign investors. Tax Holiday Benefit is one among them. But in last year's budget 20% Minimum Alternative Tax ('MAT') has violent the benefits scheme. According to the scenario, the promises which were initially made by Indian government for tax holiday concept is now not in function. Investors were already getting less revenue from SEZ only because of economic slowdown, land acquisition issues etc. As if all this was not enough a MAT of 20 pct levied on SEZ profits make investors loose their confidence. In this circumstance MAT should be omitted at least from those SEZs who are already notified. So as the economic feasibility of such SEZs will be protected.
– Introduction of Advance Pricing Agreements ('APA') provisions: Lots of transfer pricing audits and litigations are currently going in the Indian technology sector. The arm's length price fixed by income tax authorities in some cases has been exceptionally high. Basically it needs a review to set a fair and transparent pricing index for income tax certainty and transaction price. This circumstance brings APA provisions. According to APA, the taxpayer and tax authorities will sign a five years agreement on the calculation method for arm's length price for international transactions. This step could also guarantee smooth transition to Direct Taxes Code ('DTC') which contains APA provisions.
– Service tax refund: Service tax paid on input services which are utilized for export of services outside India is eligible for refund. Many times it noticed that such service tax refund claims are rejected without any strong reason which not only prolongs the refund process but also generates unavoidable litigation cost and brings lots of confusions in the mind of a taxpayer. Export companies should get an exemption in import duties, thus it will help the industry as well as the government too.
Other policy measures, such as clarification on the timelines by which Goods and Services Tax as well as DTC will become reality will also be helpful for long-term planning.
The countdown has already begun. Let's wait and watch what is waiting for the Indian technology sector.