NASSCOM recommendations for the success of 'Make in India'

NEW DELHI, INDIA: The SMEs and technology Start-ups need an environment of constant nurturing including access to funds, incentives to support operations and a simplified compliance framework. On the other hand large enterprises require stable policies and predictable regulations to continue its global journey, says the National Association of Software and Services Companies (NASSCOM).

In its budget recommendations, NASSCOM highlights necessary aspects that can promote a healthy growth oriented business environment for existing IT players, innovation driven start-ups and SMEs.

R. Chandrashekhar, President, NASSCOM said “The success of the flagship initiatives of the government - Digital India and Make in India not only offer tremendous opportunities for the innovation driven technology Industry, but its success also hinges on the sustainability and continued growth of the technology driven sector. Hence, factors that can potentially restrict growth and innovation needs to be addressed.”

Some of the salient recommendations by NASSCOM are:

Addressing regulatory and tax challenges for technology start-ups and SMEs, like

o Difficulties in access to funding for low asset based firms

o Investor difficulties related to regulations and taxations discouraging investors

o Ambiguous Software product taxation and implementation issues adding to burden

Incentives for technology start-ups and SMEs

o Extend provisions on deduction for employment and skill development (Section 80JJAA), R&D credits,

o Suggestions for new provisions like Offsetting manpower training cost, deferred tax credits for start-ups

Interest rates on penalty for service tax, for amount under litigation, should be rationalized. Rates introduced in the last budget are punitive @ 30%. NASSCOM acknowl­edges that companies who have collected service tax but not paid to the Government should be penalized and hence a 30% interest rate maybe applicable to such defaulters. For others, where there is a dispute over legal interpretation on applicability of service tax, a nominal rate of interest maybe notified

To encourage growth of ecommerce, taxation on digital transactions should be in the least, at par with the physical world, if not reduced to facilitate adoption and migration to technology enabled platforms. This will help Government leverage the inherent transparency and traceability of online transactions

Towards Make in India

o In recognition of the transformative impact of IT, extend incentives to the Indian Industry for adoption and implementation of IT tools for efficiency enhancement, ensuring sustainability and global competitiveness for the success of the Make in India program

o Revoke exclusion of expenses towards software tools for R&D from weighted deduction under the DSIR guidelines to encourage adoption of advanced R&D

Policy revisions/ clarifications for expansion of the Industry

o Exports– Foreign Tax Credit policy, drawback scheme for Services, carry back­ward of business losses

o Domestic business – align royalty definition with international practices, clarify POPS rules, revisit amendments made in CENVAT rules, restore lower TDS rates on Fees for Technical Services, clarify Transfer pricing related issues some of which were addressed in the last budget but details are awaited

The prevailing conditions and prerequisites for participating in Government programs are onerous, and not all past experiences have been favourable. Further, SMEs face stiff barriers in the eligibility criteria related to past experience which need to be revisited.

There are several long pending issues that require clarifications to minimise disputes.