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Union Budget 2011: Reactions from the IT Industry - Part II
IT News Online Staff
2011-03-01
Sunil Dutt, Vice President and General Manager, Personal Systems Group, HP India:
Budget 2011 has been very lukewarm towards the IT sector with no major alterations directed towards it. While we welcome the initiatives towards increasing the penetration of rural broadband connectivity, its full benefits could have been reaped only if personal computing devices had been made affordable to the masses.
No change in excise duty will help maintain prices, however, a reduction in excise duty, central sales tax and the abolition of Special Abolition duty would have helped achieve that end and guarantee inclusivity. Nonetheless, we welcome the steps that had been taken towards ensuring fiscal consolidation which will benefit the government as well as the corporate sector.
Ambarish Deshpande, Director Sales, McAfee India:
We are delighted that the Finance Minister has recognized the role of IT in varied aspects of governance. Initiatives mentioned in the budget towards e-filing, e-payment of taxes, computerization of commercial taxes and the creation of ‘Sevottam’, a Web-based facility for tax payers are strong indicators of the country’s movement towards a convenient and automated mechanism of tax administration. However, as we move towards an information driven economy, it is essential that the ‘webification’ of these critical applications takes place on secure platforms so that majority of tax payers migrate to using this convenient mechanism.
In terms of the IT sector, the issue of STPI extension has not been addressed in the budget. But we expect the proposed Direct Tax code, which will be enforced in April 2012 to continue catalyzing the growth of this industry. We welcome the budget’s specific and actionable framework towards the enforcement of GST, which will work in the industry’s favor by bringing about standardization in taxes. The reduction of corporate surcharge from 7.5% to 5% will also amount to greater profitability for Indian companies.
Sharekhan:
Given the tough macro environment and political compulsions, the Finance Minister has avoided proposing any significant reformist policy decisions while announcing the Union Budget for FY2011-12. At the same time, contrary to expectations the finance minister has not resorted to the unwinding of the fiscal stimulus announced earlier and/or a hike in the indirect taxes to boost revenues and the budget is growth oriented in that sense. The strong emphasis on agriculture and infrastructure sectors is in line with expectations and the finance minister has touched upon some key issues without proposing any concrete steps to tackle the same.
The equities market was pleased with the lower than expected government borrowing figure of Rs. 3.4 trillion (against an expectation of Rs. 3.8-4 trillion) and the aggressive fiscal deficit target of 4.6% as against a target of 4.8% under the revised Fiscal Responsibility and Budget Management (FRBM) Act. However, the achievement of the stiff fiscal deficit target is based on a fairly healthy assumption of a 17.9% growth in the net tax revenues, but a muted increase of just 3.4% in the total expenditure.
The growth in the total expenditure has been managed through depressed provisions for subsidy expenditure (lower by Rs. 20,000 crore in the FY2011-12 budgeted figures despite the spiraling crude oil prices) and lower allocation for social services (lower by Rs. 31,000 crore in the FY2011-12 budgeted figures). Consequently, the Street would take the fiscal deficit target set in the budget with a pinch of salt and the market’s focus would shift back to corporate earnings, domestic macro issues and global cues.
Col. Bedi, CMD, Tulip Telecom:
The budget presented by the Finance Minster today is a "Socially Inclusive" budget, having emphasis on health, education and services as broad sectors. I also see broad basing of tax bracket as a positive step towards enabling greater purchasing power to the larger population. Government’s effort towards rural broadband for the inclusive growth of panchyat’s is a step in right direction.
Jeya Kumar, Chief Executive Officer, Patni:
The Union Budget lays specific emphasis on controlling fiscal deficit and accounts for adequate intervention from the RBI to curb issues of rising inflation. Sectors such as Agriculture, Infrastructure have been appropriately addressed in the budget, but there isn’t as much focus on the IT industry.
We believe that the inclusion of SEZs under MAT will reduce the productivity of companies, especially in the small and medium sectors, which form a major chunk of the IT industry. While the increase of MAT from 18%-18.5% is notable, it will not have drastic implications among companies. Although new services are included for Service Tax increasing the input costs, the efforts to streamline and simplify the refund mechanism are a welcome step. The much awaited clarification regarding taxation of Licensed Software has not come, which is disappointing. Another welcome proposal is the reduction of tax on Foreign Dividends to 15%. This may increase the fund repatriation to the Parent companies in India.
Even though the budget does not mention any extension of the STPI scheme, we hope that the proposed Direct Tax code expected to be enforced in April 2012 will provide succor to the industry for its growth. We would also like to welcome the Finance Minister’s consideration of reducing the corporate surcharge by 2.5%, which we believe will have a positive impact on the profitability of most companies. By enabling rural India to harness broadband Internet, the Finance Minister has also provided a fillip towards the cause of penetrating Internet to the grassroots of the country.
Venugopal Dhoot, Chairman, Videocon Group:
We welcome the Finance Minister’s decision to further lower prices on mobile handsets. This will provide a further fillip to mobile phone penetration in the urban and rural part of the country by widening the base of users, thus providing them an access to better services and user-friendly handsets.
Satish Vuppalapati, MD, Prithvi Information Solutions Ltd.:
This financial budget, there is nothing to add to the IT/Telecom industry. FM also didn’t talk about the IT exemption under STPI, which most of the IT leaders expected. The increase in MAT by 0.5 % is very marginal. This year the prime focus of the budget seems to be controlling fiscal deficit.
Ashank Desai, Co-Founder, Mastek Ltd.:
Overall: The finance minister has given a good budget given the current constraints
We welcome the following:
- Fiscal deficit target of 4.6% of GDP
- Policy level initiatives of BFSI sector
- Disinvestment of 40,000 crores will help reduce fiscal deficit
- Allowing FDI in Mutual Funds
- We also welcome the government’s e-governance initiatives in terms of CBDT & GST, however were expecting some percentage allocation to technology.
- The IT industry welcomes the tax reduction for foreign subsidiaries to 15%. However the tax issues of the IT sector have not been addressed in the budget.
- Computerization of Stamp duty and providing a grant of 300 cr. is a welcome move
STPI scheme - Disappointed on the STPI front as the finance minister has not extended the 10 year exemption period by even one year.
Welcome the key development of 500 crore grant to NSDC
We had expected the MAT to be reduced while it has been increased to 18.5%
Education
- The buoyancy of tax collection for the education sector has been increased by 24% while a 30% increase was required
- Government has given grants to the Sarvasiksha Abhiyan, which shows increased focus to primary education, an important area
Infrastructure:
- Outcome based budget would have helped the sector
- A lot of initiatives have been announced for financing the growth of the sector, however, there is no provision towards ensuring timely completion of the projects.
- Bharat Navnirman - increased 10,000 crore in terms of infrastructure while its welcome it only adds up to 20% aid while the sector requires at least 30%-40% to match the growth of other countries.
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