3rd March, 2000
CHENNAI – “It is an extremely disappointing Budget as far as the software industry is concerned,” said Mr. K. V. Ramani, former Chairman of Nasscom, and Chairman and Managing Director of the Chennai-based Future Software Pvt Ltd.
“It looks like the Finance Minister has ignored all but the top 25-30 IT companies when he announced certain measures”, he said. According to him, he was particularly disappointed by the move to slash the tax exemption on export profits by 20 per cent annually.
Under this plan, export profits would be fully taxed at the prevailing rates in five years, and this would cover the software industry’s exports as well.
“There are very few Wipros and Infosyses in this country, and these companies could afford to absorb such tax outflow. What about the rest of the software companies which have not reached the critical mass required to be able to afford the taxes?” he asked.
Out of the approximately 550-odd software companies, only a few, about 25-30, have reached that critical mass. “Just when a lot of ventures – dotcoms and other Internet-related services companies – are being formed, this would be a major setback,” he said.
Mr. Kalpathi S. Suresh, Chairman and CEO, SSI Ltd, another Chennai-based IT training and software development company, said, “Just the timing is not right. The move to tax exports could be a major impediment to the growth of smaller companies.”
“Now there will be less money for these smaller companies to invest in research and development and product development,” added Mr. Ramani. The saving grace seemed to be that the export profits have not been fully taxed overnight, and that the Government has decided to tax it a phased manner over the next five years.
The move to reduce the customs duty on some hardware components to five per cent, and in some cases nil duty, has been welcomed by the industry. “This is a positive move which will help increase PC and Internet penetration in the country,” said Mr. Ramani.
Another move welcomed by the software industry was the increase in FII holding cap from the present 30 per cent to 40 per cent. Mr. Ramani said it would be good for listed companies.
Mr. R. Ramaraj, Managing Director, Satyam Infoway, in a faxed statement said, “While it was heartening that the Budget began with the stated intent of poverty alleviation through a focus on knowledge industries and infrastructure, it was disappointing to note that there were no specific initiatives to enable this.”
“For instance, the Internet industry could have been given infrastructure status, there could have been substantial reduction in duties on networking and communication equipment, zero per cent duty on set top boxes and so on,” the statement added.
Mr. Arun Jain, Chairman and Managing Director, Polaris Software Lab Ltd, said in a statement, “What will dampen enthusiasm of the fast growth sectors is the increase in tax on mutual funds, increased taxation for corporates on dividends, and graded withdrawal of tax exemption on exports.”