Full marks for hardware duty cuts, FII limit
Mar 02,2000
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THE Union Budget 2000-01, which has adopted a carrot and stick policy towards the information technology (IT) sector, evoked a mixed response from industry associations as well as corporates.
While the National Association of Software and Service Companies (Nasscom) expressed disappointment over the move to withdraw tax incentives to the exports segment, the Manufacturers Association of Information Technology (MAIT) described the Budget as "practical and pragmatic".
"`Nasscom is disappointed in the announcement of ultimate removal of tax incentives and non-enhancement of overseas acquisition limit of Indian infotech companies," said Mr. Dewang Mehta, President of the association, which had demanded retention of tax exemption to software exports.
"We recognise that export incentives would have to go to make India WTO compliant. So in that regard we are glad that the Finance Minister has not overnight removed Section 80 HHE. However, for the smaller companies to plan their growth, it may have been better if this dilution had started from next year," he said.
However, Nasscom welcomed the decisions on the venture capital industry, FII limit and withholding tax on software.
On the other hand, MAIT said the hardware sector could not have bargained for a better deal than what has been announced. "It is a practical and pragmatic Budget and there were really no surprises," said the MAIT Director, Mr. Vinnie Mehta.
A long standing industry demand - reduction in the duty on critical components from 5 per cent to nil - has been met with. The critical components include ICs, microprocessors, storage devices, hard disk drives, CD-ROM drives and colour data graphic tubes.
While the SAD of 4 per cent is to continue on imported components, and now on finished goods import, the association has said that it is not clear if SAD will be applicable to critical components.
The implications, according to MAIT, are that the duty differential between finished goods and imported components would facilitate local manufacturing. Also, the price of fully imported systems would be marginally less by 0.5 per cent and that of locally manufactured goods would be less by 3-4 per cent. If SAD is not applicable on critical components, the price will be reduced by 5 per cent.
The association expects the Exim policy to simplify procedures for exports and imports on lines of the excise reforms, and removal of special import licence (SIL) on populated PCBs.
According to Mr. Ajai Chowdhary, Chairman and CEO of HCL Infosystems, the Budget will benefit the hardware industry in two ways: First, the reduced duties on components will result in 3-4 per cent reduction in PC prices; second, the increase in the duty differential on finished goods and imported components will provided a much needed boost to hardware manufacturing in India.
The Managing Director, Tata Teleservices Ltd, Mr. S. Ramakrishnan, said the Government effort to recognise the telecom sector as a thrust area was a welcome move and the decision to bring in reduction in excise duty (from 25 per cent to 5 per cent) on handsets was good for the industry. "We hope such decisions coupled with the new TRAI in place brings in the calling party pays regime which would activate the cellular industry," he said.
"On the telecom infrastructure side, there is a lot more that needs to be done. The infrastructure sector is demanding larger interest by the Government since the Budget did not have much for the infrastructure," he said.
Adobe Systems India Pvt Ltd's Managing Director, Mr. Naresh Gupta, while welcoming the step to phase out incentives for exports, said the revenue collected from this tax procedure should be reinvested in enhancing the telecom infrastructure and in setting up more quality higher education institutions.
The KPMG Director (IT), Mr. Atul Pradhan, said the cap on acquisitions remaining at $100 millions would be a constraint on the ability of Indian IT companies to acquire suitable businesses overseas.
The Director (Finance), VisualSoft Technologies Ltd, Mr. Krishnam Raju, while lauding the duty cuts for the hardware sector, the move to encourage the venture capital industry and the increase in foreign investment in companies, felt that the delay in announcing ESOP concessions was not as per expectations.
The HCL Comnet President, Mr. Vineet Nayar, said the liberalised treatment for venture capital and simplified rules for registration, along with tax treatment, pointed towards a renewed emphasis on building the latent potential of Indian entrepreneurs.
Vintron Informatics Ltd's Director (Marketing), Mr. Manish Agarwal, said the discrimination between manufacturers and traders would be eliminated with the across-the-board imposition of SAD, leading to the creation of a level playing field.
The President and Managing Director of Portal Player and former director of Software Technology Parks of India, Mr. J.A. Chowdary, said the Government had taken yet another positive step towards developing the IT sector by announcing certain innovative decisions. However, as against the industry expectation on ESOP, nothing has been spelt out by the Finance Minister.
"The move to bring in a new tax regime augurs well as it prepares the country to the transition to the WTO regime set to come into place by 2003. This will bring in the necessary level playing field. However, as against the industry fears of imposition of new cess, this did not come, which is most welcome," he said.
"The custom duty reduction on cellular handsets and the move to encourage development of optic fibre cables would help the industry reach out to rural areas where certain services like medical transcription can be taken up. Such a move will enable the Government to take up a balanced path," he said.
The Chief Financial Officer of Infotech Enterprises, Mr. Mohankrishna Reddy, said IT companies were in the growth phase and any adverse impact on the taxation side, even minimal, would not send the right signals. The tax concessions for the venture capital industry and increasing the FII investment limits would spur fresh activity, he said.
"If the Finance Minister had spelt out clearcut guidelines in reduction of Government expenditure, especially non-plan expenditure and reduction of Government staff, it would have had a better impact on the overall picture," he said.
Describing it as a Y2K Budget, Mr. Umesh Tibrewal, CEO of VSplash, said the moves for venture capitalists were very significant and the downtrend in the taxes and duties on PC components would help in improving the PC penetration in the country. "However, the withdrawal of export concessions is a pill difficult to swallow," he said.
Mr. Anil Batra, President of Cisco Systems (India) Limited, said: "The extension of concessional rate of duty on specified telecom equipment to ISPs will not only pave the way for increased Internet penetration but also help build infrastructure faster. Another positive factor is in the impetus provided for venture capital funds by easing the burden of taxation."
Mr. Manoj Kohli, CEO of Escotel Mobile Communications Ltd, said: "With the reduction in duties on handsets and optical fibre cables, computer and ISP equipment, the telecom industry can look forward to a significant acceleration of tele density and growth. Staying in touch with the world will be more cost-effective, quicker and efficient in the new era."
-Business Line |
