Budget 2013-14 ignores BPO industry


Infotech Lead India: The Budget 2013-14 has ignored the BPO industry in the country.
It is disappointing to see the Government not mentioning any incentive to continue promoting the IT/ITES industry, said a senior executive with BPO firm.

The best paying service jobs in India are in the international IT/BPO industry, serving overseas markets. This industry also can help narrow our trade deficit in turn support a stronger rupee and lower inflation.
Nimish Soni, executive director, Offshore Services – Asia, Xchanging, said: “The government needs to do more to keep this industry growing against growing challenges from other low cost destinations such as Philippines, etc.  There are 2 options – one is removal of MAT from SEZs in Tier 2, 3 and 4 cities. Other option is to provide direct investment support to companies investing in tier 2 to 4 cities in India to overcome the severe infrastructure deficit and educational quality deficit. South Africa does this for example.”

A section of Indian IT industry says Budget 2013-14 shows maturity of the domestic industry.

Ramesh Loganathan, vice president Products and center head
Progress Software, said: “This budget is more of sustainable medium-term substance rather than short-term considerations’ driven. I am particularly impressed with the thought that has gone into helping foster a startup ecosystem.”

Though small steps, they are two strong signals in the budget that forebode very well for the next few years’ budgets. One is the stipulation that allows corporate support for academic incubators to qualify for the mandatory Corporate Social Responsibility (CSR) that is now in place.

The second is the clarification that angel investors, which are not yet categorised by the regulator, will be now clubbed with venture capital or social funds. The former will hopefully spur a surge in corporate providing financial support to academic incubators, which will in turn accelerate the growth of new technology start-ups that leverage IP and innovation. The latter, removes a major ambiguity introduced in last budget that treated angel investment as income to the startup and therefore taxable which was a major deterrent for angel investments. Both of these will significantly help boost the early stage startup

A related element in the budget is the SIDBI’s re-financing facility to benefit micro small and medium enterprises (MSMEs) which will now be an alternate source of funding for startups also- which given
their size qualify as MSME.

Directly relating to the IT industry, the strong support provided for semi conductor segment is a good thing. The incentives for semiconductors industry including zero customs duty on plants and machineries, and the 15 percent investment deduction allowance introduced for investments of Rs 100 crore or more in plant and machinery is appreciative.

A slight disappointment to the IT industry is the lack of any new stipulations clarifying the transfer-pricing computation which is an issue the industry has taken up with IT authorities and finance ministry for a few years now, to ensure more transparency and clearer guidelines on how this is treated and computed.

Suman Reddy, vice president and managing director, Pegasystems, said: “Overall budget was an attempt to increase investments both domestic and foreign and also increase the revenue by raising the tax implications.”

Though the finance minister acknowledged the challenges in bringing back the economic growth to 8 percent, but there were no specific policies and decisions announced which could allow us to grow at that rate. As far as the salaried class is concerned the budget had some good elements such as the decrease in tax implications for interests on housing loans and tax credit of 2000 to the people in the income bracket of 2 lakh – 5 lakh. The initiatives on women development
for reducing gender discrimination, infrastructure development initiatives such as roadways in AP are refreshing. However having said that, this budget did not quite answer the expectations of the industry
at large as there were no major policies or reforms announced.

“From the IT sector’s perspective, we had high expectations from this budget to have some clarity on the transfer pricing and hoped for a structured framework in terms of policies for long term growth of the IT sector. We also had expectations on the infrastructural incentives for early stage startups,” Pegasystems MD added.

Most of these were unanswered in this budget. However benefits for MSMEs upto 3 years of them graduating to a higher category is commendable. Also the policy implementation for considering private sector involvement in a certified institutional incubation center as a CSR activity is appreciated.

On the other hand this budget lacked clarity on investment related policies. Though the finance minister mentioned in his speech, the objective of India being recognized as a country favorable for business and acknowledged the areas of concern such as easy policies and simplified regulations to achieve these objectives, there were no definite policy decisions taken on the same which was disappointing. Also there was no clarity on the policy framework for bringing in the FDI and FII.

Sanjay Deshmukh, area vice president – India Subcontinent, Citrix: said: “The Union Budget 2013-2014 has been an affirmative, balanced and realistic one that will boost our economic growth, even though it hasn’t been particularly relevant from an IT hardware and software perspective.”

On a positive note, provisions for post offices deploying core banking tech and schemes for modernization and technology upgradation in the textile sector; would benefit the sectors immensely.

The budget indicates that there is a pressing need for the public sector banks to be compliant with BASEL3 norms which underscores the need for better data management that can be realised through technologies such as virtualization and cloud services. Additionally, incentivising the semiconductor wafer fab manufacturing facilities along with provisioning zero customs duty for plant and machinery is a move in the right direction.”

Srinivasan HR, vice chairman & vision holder, TAKE Solutions, said: “From a macro perspective, it is a balanced budget. There are reasonable investment incentives and certain interesting aspects of capital formation for growth. It is an attempt to look at containing fiscal deficit. However, more could have been done to address the TAX GDP ratio. From an IT sector perspective, there is nothing specific to enthuse the sector. There was a hope that something would be done on extension of STPI concessions.

On GAAR, the Finance Minister has struck to his earlier stand of deferring the implementation till April 2016.

“Among other clauses, a monetary threshold of Rs 3 crore of tax benefit in the arrangement will be provided in order to attract the provisions of GAAR. Where a part of the arrangement is an impermissible avoidance arrangement, GAAR will be restricted to the tax consequence of that part which is impermissible and not to the whole arrangement,” said P Venkatesh, director – Innovation, Maveric Systems.

GAAR will not apply to FIIs that choose not to take any benefit under any tax treating India has with other countries, and also will not apply to non-resident investors in FIIs.

Investments made before August 30, 2010, the date of introduction of the Direct Taxes Code (DTC) Bill, will be exempt from the provisions of GAAR, under the revised rule

However, there is no clarity still on:

What are the fundamental rules that we subscribe to- GAAR is in the initial stages with just about 6-7 countries being the subscriber; one needs to examine the spirit and substance of this and agree on the fundamental structure of this.

How would we implement this- this is a critical step having a global impact. It needs to follow the tenets of the good practice announced earlier.

The finance minister commits to issue a circular on development centres and safe harbor rules before 31st March 2013. This should clarify the issues on tax benefits for development centres as well as on transfer pricing.

V Laxmikanth, managing director, Broadridge Financial Solutions, said: “It was motivating to see Government recognizing the need to give a boost to start-up/Incubation eco system. With the announcement of expenses/investment made on incubators qualifying as a CSR spend and hence eligible for rebates will bring in an enhanced support from the industry towards encouraging innovation. A very innovative move considering it is tied to the initiative being recognized

as CSR by the Government and yet leading to investments in the product arena, Building a stronger eco-system.”

As a part of his inclusive agenda two aspects have been addressed regarding women – funding to enhance the security and a bank for the women by the women.

The good news is that need for increasing the investments on all fronts has got a prominence in FM’s speech which is likely to lead to GDP growth and improvisation of rating of the country though the impact could be an increase in inflation down the road.

As required, infrastructure gets significant allotments which are need of our country. Innovative methods have been proposed to mobilize funds in infrastructure like infrastructure debt funds, India Infrastructure Corporation in partnership with ADB will extend credit policies etc. Education, skill development and health have also received attention at the budget presentation with 17 percent increased allocation to Ministry of HRD for various education and skill enhancement schemes.

For the IT sector specifically, Union Budget 2013 does not carry too much given that no new SOPs or relief have been announced, instead an increase of surcharge on the income above Rs. 10 crores has been added.

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