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Budget 2013 wishlist: What the IT industry wants

By V Balakrishnan
February 8, 2013

(Any opinions expressed here are those of the author, and not those of Reuters)

This has been one of the most challenging years for the IT and business process outsourcing (BPO) industry in India with global economic uncertainty affecting revenue growth.

The world is facing a “balance sheet recession” resulting in slower growth and greater volatility. While we have seen some stability in developed economies in the recent past, the worst is far from over for the industry.

The need of the hour for India is to focus on accelerating economic growth and creating more jobs. There are several things the government can do to sustain growth in the industry:

E-governance
Increase spending on information technology to drastically reduce corruption, bring in transparency and improve quality of delivery. The government should focus on passing the Electronic Delivery of Services Bill introduced in parliament in 2011. This will accelerate the adoption of IT in the government and benefit the country. There are several big-ticket IT projects in railways, defence and other ministries. But the decision-making process is very slow with inadequate allocation of funds. If a list of top 10 IT projects is taken up on priority and allocated funds, it will be a game changer for the country as well as the IT industry.

Clarity on Transfer Pricing
Many global corporations have captive centres and R&D centres in India. They leverage Indian talent for global operations, adding more value to its offerings in India. In addition, there are several Indian companies who operate outside the country through subsidiaries or other forms of permanent establishment (PE). Transfer pricing norms are not very clear and this is resulting in huge tax demands on the industry — creating uncertainty, hurting growth and also affecting the creation of new jobs. The budget should provide more clarity.

Service tax refunds
Software exporters have been exempted from output service tax but are required to pay the input CENVAT (central value-added tax)  on services. They can then seek a refund from the government. In order to speed up the process, the government has introduced a simplified procedure based on getting a chartered accountant’s certificate. But officials often reject refund requests for frivolous reasons. As a result, there’s a massive backlog, running into thousands of million of rupees of CENVAT refunds. The government should look at exempting software exporters from paying CENVAT taxes.

Encourage product companies
The government should immediately set up a venture capital investment fund for the IT industry and not tax income from it. This will enable the fund to raise more money and provide seed funding to budding software companies and help make India an innovation hub.

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