Archive for March, 2010

Budget 2011-12: Disheartening for SMEs in IT sector

We Indians wait for the Union Budget at the beginning for every fiscal year. It throws light to our growth prospects for the coming year and the progress made by the sector in the previous fiscal year. It is important to look into all the sectors and distribute the revenue generated, for higher prosperity of all the sectors. Since last two decades IT field has been supported well by the Indian Government. Globalization clubbed by FDI has thrown open new vistas of growth. Various companies were welcomed to Indian soil by this move and IT companies started to mushroom in India.

Last two years’ budget for IT sector was good. This financial year many of the Small and Medium Enterprises in the IT sector were looking positively towards the extension of Software Technology Parks of India (STPI) and tax clarifications. STP has become a necessity for many small and medium IT enterprises that are already hit with wage hikes, steep upswing in tax rates, and moderate growth. The small and medium entrepreneurs had expected reduction in taxes and increase in subsidies. “Export promotion incentives and further tax reductions for IT/ITE’s” expected Ms Usha, VP – Operations, Compare Infobase, out of the budget. “Subsidies should be increased for IT/ITES for newcomers in this sector” demanded Avinash, a student of from Pune. Some expected tax credits for skill development and governance.

But expectations need not be met always. Budget 2011-12 came with hammer and a cushion as well. Given below are the highlights as far as IT sector is concerned,

· MAT (Minimum Alternate Tax) is increased from 18 per cent to 18.5 per cent
· Corporate tax surcharge reduced to 5 per cent from 7.5 per cent.
· Tax exemption is allowed on infrastructure debt funds.
· Taxes on the foreign dividend are lowered.

The small IT firms, which come under Special Economic Zones, are hit hard with the increased MAT (Minimum Alternate Tax). Whereas Corporate tax surcharge reduced to 5 per cent from 7.5 per cent came as a sigh of relief. Tax exemption is allowed on infrastructure debt funds, which is really a blessing to the sector. Taxes on the foreign dividend are also lowered to fetch more foreign revenue.

According to Mr. Sharad Poddar, Director – Finance, Compare Infobase, “ We expected an extension of tax exemptions of STPI units for an year. Though we welcome the move of reduced Corporate Tax Surcharge, our tax liability is still slightly higher since the MAT is increased. In general we are not that happy about the budget, since all the companies coming under SEZ are affected”.

Expectations of hundreds of small IT entrepreneurs were shattered as the Tax exemption of STPI units were not extended. “Major area of concern is, they have not extended the Tax exemption of STPI units, to one year as expected. Small firms with income less than a crore will be hit real bad with the MAT increase.” Mr Sharad added.

This is a discouragement for the IT sector from Government’s side. This disheartening move cuts down the competition among small and medium sized IT market, helping the big fish in the IT market to maintain their monopoly.

– Priya Chandrakanth
Corporate Communications Executive
Compare Infobase Limited.

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