Hopes of Indian software service companies have been dashed as the sector was hoping for a reduction in Minimum Alternate Tax (MAT) for companies in SEZs in the Budget.
This non-reduction in MAT could impact employment and may force companies to set up operations in places like Singapore, say industry watchers.
According to Milind Kothari, Managing Partner and head of Direct Tax at BDO India, while MAT is a justified means of getting tax revenues, the government should have looked at the multiple benefits such as generating more employment, increasing investor confidence and also look to strengthen the country’s lead in software services.
Companies in the $100-billion software export industry had asked the government to extend tax holidays by another five years. Currently, companies pay 18–30 per cent in taxes. In the Budget, the government had announced reduction in corporate taxes from 30 per cent to 25 per cent, which, however, will be applicable in the next financial year.
In 2011, the government broadened the scope of MAT and Dividend Distribution Tax by bringing in SEZ developers and units under the ambit of MAT, thereby diluting the benefits offered under the SEZ scheme, which kicked off the Indian IT sector.
According to R Chandrashekhar, President, Nasscom, nothing was articulated on MAT, which is an area of concern.
Others believe that this development will impact corporates. “The miss on MAT reduction or elimination combined with the overall tax increase will have some impact on industry profits this year but will not be a show stopper,” said Ganesh Natarajan, Vice- Chairman and CEO, Zensar Technologies.
According to Suresh Venkatachari, Chairman of 8K Miles Software, the industry was looking forward to incentives for exporters.
Suman Reddy, Managing Director, Pegasystems India, said the Budget did not provide any clarity on the transfer pricing issue, which the industry was awaiting.
(This article was published on February 28, 2015)
