7 Budget Recommendations from NASSCOM for BPO Industry in India

March 13, 2012: In an attempt to aid the growth of Information Technology and Business Process Outsourcing industry in India, NASSCOM has raised the concerns shared by the industry to the central government. The recommendations have been submitted to the central government for consideration, so that appropriate steps can be taken by the government in the Union Budget 2012. The objective of the NASSCOM behind the recommendations is to develop a favorable environment for the IT/BPO industry in the country. The main recommendations that were put forward are:

  1. Re-instating the incentives: The Special Economic Zone (SEZ) Act was introduced in 2005 by the government of India. It was aimed at stimulating exports and creating large scale employment. This was beneficial for the IT/BPO industry as it provided tax havens for them in export profits. However, the different policy changes that were introduced later and the introduction of Minimum Alternate Tax (MAT) have taken off the incentives that were given to the industry.

    NASSCOM in its recommendations has asked the government to withdraw MAT on SEZ, as it is in direct opposition with the SEZ act that was introduced by the government in 2005. The recommendations also ask the government to reduce MAT rate to 1/3rd of the corporate tax.

  2. Issues with transfer pricing: With the use of transfer pricing, the government had made huge assessments on the companies in the IT/BPO sector, which has led to litigation for many companies. NASSCOM has recommended that the government should stick to their promise that Safe Harbor provisions, Dispute Resolution process and Advance Pricing Agreements will be introduced to overcome the issues related to transfer pricing.
  3. Aid for Small and Medium Enterprises and tier 2/tier 3 cities: With highly unstable and volatile economic environment, the Small and Medium Enterprises in the country are going through difficult times. The Special Economic Zone Act does not allow the SMEs to start business in SEZ due to certain conditions in the act. So the SMEs that really need support do not get any help from the act. NASSCOM has recommended that the government should consider giving support to SMEs in the form of tax reimbursements or other measures. It also recommends that similar assistance should be provided to companies in tier 2 and tier 3 cities.
  4. Avoiding taxing at multiple points: With the advancement in the Information Technology in the country, there has been an increase the number of softwares that can be downloaded from the web. Since there are no proper guidelines that govern the taxation of such transactions, there is an inconsistency in the taxing practices. NASSCOM has recommended that the government should introduce guidelines that will consider such issues.
  5. Exemption from service tax: The present service tax refund should be replace with tax exemption which will be based on the proportion of export on total sales.
  6. Onsite services are not provided with tax deductions: The onsite services are denied from tax deductions that they are entitled to, stating various reasons. The government should take measures to prevent this as onsite services are a part of IT services.
  7. Double tax on software: Lack of clarity on defining software as goods or service has led to a situation where it is taxed by both the central and state governments. This has increased the tax burden on the industry. NASSCOM has recommended that software should be defined as software and state governments should not tax them.

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