New Delhi : With Indian software companies fearing that they will finally be forced to contribute to the Government coffers in Budget 2001, the key question is: just what can be the nature of taxation? According to market sources, the only logical way in which the software industry can be brought under the tax net will be through a surcharge on corporate tax. The same sources predict that if levied, the surcharge could be to the tune of 4-5 per cent. The sources said that the surcharge is being contemplated as there is no other feasible option to tax the software industry. "Taxing software exports does not make sense as no other export revenue is taxed in the country," said a senior vice-president of a leading software company. The other option, of imposing a service tax-in addition to the existing sales tax software attracts from state governments-on domestic software development operations is also not expected to be a popular solution.Such a tax will not fetch much for the Government as the size of domestic software business is very small. "Moreover, the Government is going to be biggest consumer of IT products and services for projects such as IT for Masses. Any additional tax will boomerang on the Government as more IT expenditure is expected in the coming fiscal," said an industry source. To levy a decent revenue-raising measure, therefore, the only option appears to be a software surcharge, which may be slapped on all software companies across the board, irrespective of their STP (software technology parks) or EPZ (export processing zone) status. However, it is possible the Government may create a slab based on turnovers for applying the surcharge, in order to exempt very small software companies from a tax burden.
"Any new tax is not desirable at this juncture when Indian software is experiencing emerging competition from countries like China. But, even if any tax is being planned by the Government, it should not be applicable for small and medium sector companies, so that they remain competitive and motivated in the export market," said Mr P K Sandell, chairman of National Association of Small and Medium Companies (NASMEIT). The software companies would, in any case, be paying corporate income tax on 40 per cent of their export earnings for the year 2001-2002 as per the Government decisions on phasing out the 100 per cent tax concessions on export earnings in five years.
As per the Finance Bill 2000, the 100 per cent exemptions of the export earning in corporate tax was reduced to 80 per cent for year 2000-2001 and will be reduced to 60 per cent this year. This would mean that all software companies which are not exempt from corporate tax-such as STP and EPZ units-will have to pay tax on 40 per cent of their export earnings in year 2001-2002.
According to sources, the Finance Ministry is of the view that the software industry has achieved enough maturity to sustain its own operations without any extraordinary support from the Government and in fact, it should now start contributing for the development of the country. However, Mr Dewang Mehta, president, Nasscom does not seem to agree. He said, "There is no need to put any additional tax on software and if it happens we will strongly protest it and will work with parliamentarians to roll it back."
Copyright © 2001 Indian Express Newspapers (Bombay) Ltd.
