Budget: Mixed reaction from IT industry

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Budget:Mixed reaction from IT industry

The budget has not been positive for the IT industry

Friday, February 29, 2008

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"Balanced Budget"
V Balakrishnan, CFO, Infosys

It is a well-balanced budget. The FM has made sure that economic growth continues and for inclusive growth. A lot of focus was on agriculture, healthcare, and manufacturing growth.

There was a lot of attention on education this year, which would expand the talent pool. It is good that personal tax has come down.

There was nothing specific for the IT industry. We were hoping for the STPI benefits but that did not happen. There are some concessions on FBT but he has been doing it incrementally. He has not removed FBT on ESOPs, which we had hoped he would.

"Not positive for IT industry"
Kris Gopalakrishnan, CEO and MD, Infosys Technologies Ltd

Overall economic growth has averaged 8.8 per cent in the last four years.

GDP growth rate for the year is estimated at 8.7 per cent with services leading the growth at 10.7 per cent and manufacturing growing by 9.4 per cent.

Tax revenues have been extremely buoyant, increasing to 12.5 per cent of GDP, fiscal deficit is down to 2.5 per cent next year with revenue deficit at 1 per cent of GDP.

The economy is on a roll. This has allowed the finance minister to make significant investments in agriculture, education and social sectors.

However, we see inadequate allocation for higher education once again.

In terms of direct taxes the finance minister has given significant relief. This will help corporate India reduce wage inflation.

Excise duty has been reduced across the board and coupled with the reduction in direct taxes, consumption and production should increase significantly, boosting growth.

The budget has not been positive for the IT industry. Smaller companies should have been given tax relief in this budget to counter the impact of a sharply appreciated rupee. The increase in excise duty for packaged software will lead to increased piracy."

"No cheer for IT industry"
Rostow Ravanan, CFO, MindTree Consulting Limited

This is a populist budget. However, it has nothing to cheer about for the IT industry.

The introduction of service tax on customized software, in particular, is a big dampener for our domestic business.

Besides, the STPI scheme has not been extended. On the positive side, we are happy with the changes in the personal tax rates, since that will increase the disposable income in the hands of individuals.

We are also happy to see the focus on improving the educational infrastructure at all levels.

"Lackluster budget"
Frost and Sullivan

We expected the finance minister to extend the STPI scheme and also to rationalize the fees, taxes and duties applicable on the telecom sector, but this was not even touched upon by the minister in the budget. From IT and Telecom Industry point of view, apart from few small indirect positives, it was a lackluster budget.

"IT-neutral budget"
N Ramachandran, CFO, iGATE Global Solutions

Setting up of additional IITs is likely to have a positive impact on the IT industry. I believe the budget has by and large been neutral to the IT sector.

There has been no change in corporate tax and surcharge and in Dividend distribution tax.

The tax holiday under STPI scheme has not been extended, which is a little disappointing.

Allocation for health and education increased by 15 per cent and 20 per cent respectively is a positive move.

Reduction in excise duty for manufacturing sector is likely to boost demand. Increase in Short Term Capital Gains Tax to 15 per cent from 10 per cent and no reduction in peak rates in customs duty are two negatives from the budget. Loan waivers for small and marginal farmers and Income tax exemption limits raised from Rs.110,000 to Rs.150,000 may have an inflationary impact.

"Progressive budget"
Lt Col HS. Bedi – CMD Tulip IT Services Ltd

This is a very progressive budget that laid a lot of emphasis on major increases in spending on expanding financial services and health, including a much greater focus in the rural areas.

There are also benefits indicated in the duty structures for convergence products and raw material for indigenous manufacture of electronic goods.

SWAN (Rs 450 crores), State Data Centres (Rs 270 crores) and Citizen Service Centres (Rs 75 crores). We believe that these allocations will result in a major increase in the spending on eGovernance.

"Big focus on agriculture"
Srinivas, CFO, Perot Systems

Lot of attention given to the education vertical that could result in more skilled workforce.

Education budget going up from Rs 28,000 crore to Rs 34,000 crore will invest in the long-term sustained potential of the country.

Corporate taxes remaining unchanged would not be a relief to the export industry especially the IT and ITES segment that's been hit by the rupee appreciation and tax holiday going away in year 2009.

"Bold budget"
S Rajendran , CMO, Acer India

We welcome increased allocation to SSA and Education and expect this to have a positive result for us.

In the same context we welcome one lakh rural information centers, allocations for SWAN and the state data centers.

We would have liked minor obstacles to have been put out of the way for deeper IT penetration.

These are: 1. Continuation of 4 per cent special additional duty, which in any case is to be refunded subject to some laborious documentation.
2. MRP-related CVD payment has pushed up IT hardware cost by 4 to 7 per cent.
3. Excise increase on operating system from 8 per cent to 12 per cent that has been newly introduced.
4. Though some relief has been mentioned on CENVAT and duties for some hardware items, at this time we are not clear what are these and we will have to wait till we are able to see the particular notifications.

"Will stimulate economy"
MP Vijay Kumar, CFO, Sify Technologies Limited

This the right time to stimulate the economy further to continue our growth path, and that's exactly what the Finance Minister has attempted.

The measures on income tax revision, reduction in the general CENVAT rate on all goods from 16 per cent to 14 per cent to stimulate the manufacturing sector, reduction in duty on convergence products from 10 per cent to 5 per cent and full exemption from duty specified parts of set top boxes and specified raw materials for use in the IT/electronic hardware industry are all welcome steps.

However, it is disappointing that corporate taxes have not been reduced to stimulate growth even further.

It is also unfortunate that service tax on cyber café and broadband services have not been removed, nor has the duty on PCs and laptops been brought down further.

These would have been positive measures to spur the growth of PC and Internet penetration and use in the country at a time when we are faring very poorly compared to even other developing countries.

"Positive and balanced"
V. Sundararajan, CFO, Aztecsoft Limited

This Budget is a positive and balanced budget with focus on development and agriculture sector.

Clarification that Software Testing Service provided remotely through internet or any electronic network will be considered as Export of Service is a great relief to the industry.

Sec 10 A exemption to STP Units was expected be continued for a few more years and it was a dampener.

With a high proportion of women employees, the increase in the threshold limit for taxation for women to Rs 1,80,000 will be highly appreciated by the IT sector. Increase of the basic exemption from Rs. 1,10,00 to Rs 1,50,000 is a great measure for the common man.

Step forward for knowledge society
R Sivakumar, managing director - Sales and Marketing, South Asia, Intel

"We are excited that the budget is focused on building the social infrastructure by increasing broadband connectivity and strengthening the education system across India. These measures are a step forward for transforming India into a knowledge society."

Neutral to positive budget
Makarand Padalkar, chief financial officer, i-flex solutions

Overall the budget is neutral to positive and the finance minister has done a fine job of balancing between a long-term growth perspective and political and social needs.

The budget also recognizes the importance of a knowledge society and the necessity of moving India from the analog to the digital world.

It also promises a more inclusive digital future and a reduction in the digital divide. The allocation of substantial funds for various education schemes, the opening of new IITs will certainly help the IT industry to get qualified manpower even from Tier 2 and 3 towns.

The use of smart cards for disbursement of funds is good for e-governance and should help minimize leakages in disbursements. The buoyancy in tax collection has encouraged the finance minister not to impose any substantial new taxes.

However, the application of service tax on custom software is a major issue as it will potentially lead to a lot of domestic income coming under this taxation regime and we believe this can substantially raise costs for customers.

Further, this is one area where there is a necessity for clarity as it can potentially lead to multiple instances of taxation by state and central authorities.

What the IT industry was waiting for was the extension of the STP scheme. Unfortunately, there is no mention of it at all in the budget.

Indirect impetus to IT
Ravi Pandit, chairman and Group CEO of KPIT Cummins

The budget provides some indirect impetus to information technology industry. The

The emphasis on education in general and science & technology in particular is helpful, because over the long run, it will address the supply side issues.

There is also an emphasis on usage of IT in governmental operations. This is also likely to enhance the acceptance of IT in country.

As regards direct benefits to the IT sector, the provision relating to service tax indirectly helps – because it offers an avenue for setoffs for the service tax paid by the IT companies.

On the other hand, there is no extension on the STPI scheme nor is there any re-look at the Fringe Benefit Tax, especially on employee stock option plans.

I believe that there was a need to address some of the issues, especially in the context of the rupee appreciation.

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