Union Budget 2012 fails to enthuse IT-BPO industry in India

IT Industry is facing strong turbulence worldwide on account of the global economic crisis. Industry expected to come out of this phase, expecting some major announcements in the Union Budget 2012. This proved to be a big disappointment for IT – BPO industry which has been making major contributions towards the economic development of the country.

NASSCOM (National Association of Software and Services Company) regards the current year budget as a lost opportunity for the IT sector as no major announcements concerning this sector were made in the current budget. IT industry had emphasized on the lack of significant tax incentives in the past. The Budget 2012 was expected to address the issues related to tax simplifications and the proceedings related to it. There is no emphasis given in the Budget 2012 for reducing the current account deficit through higher value exports. This will certainly pave way to a low growth business environment. IT industry laid emphasis on the lack of Tax incentive schemes introduced in the past. IT companies were exempted from tax for past 10 years through Software Technology Park of India (STPI) scheme. STPI was substituted by SEZ (Special Economic Zone) along with an increase of MAT (Minimum Alternate Tax) at 18.5%.

Hits & Misses for the IT- BPO industry in the Union Budget

  • Removal of MAT – A proposal regarding the withdrawal of MAT was not addressed in the Union Budget 2012 which should have been done as it affected the feasibility of investments.

  • Incentives for SMEs – The Budget failed to focus on incentives to tier –II and IV cities which focus on skill building. This would negatively impact the SMEs who functions from small cities and towns. The proposal to tax 30% investment received by SMEs is unreasonable as it would hamper the entrepreneurship movement happening in the country.

  • Service Tax refunds – A proposal regarding the increase of service tax from 10% -12% has been mentioned in the budget. IT service industry will not have specific impacts but on the other hand, the prices of packaged software will rise which will affect the SMEs.

  • Transfer Pricing – APA (Advanced Pricing Litigation scheme) was to be introduced in budget 2012 with an objective to reduce the tax litigation. Providing tax certainty to foreign investors is one of the key reasons behind introduction of this scheme. APA will provide tax assurance. Nothing has been said about APA in the budget.

  • Dual Taxation in Software – Taxes on supply of software was a long term demand by both the Central and state government. The supply of software (packaged and customized) will come under services. Demand related to the removal of taxation related to onsite software services has not been addressed. There has not been any proposal regarding the schemes such as TDS for SMEs and non profit incentives in the budget.

A $1 billion venture capital fund for the MSME across the country has been declared by the government. This is a welcome move as it will improve the Sectoral caps on venture capitalists which will promote innovation. The Aadhar policy to drive Public distribution system will help the IT industry. The Union Budget 2012 is not a focused budget towards reforms. As far as this industry is concerned, many of the demands or concerns remain unsolved. IT-BPO industry was expecting more consistent and stable policies to be included in the Budget.  




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