Nasscom seeks two-year extension on STPI scheme

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Nasscom seeks two-year extension on STPI scheme

Budget 2010 has brought down the curtains on the tax holiday on software technology parks of India (STPI) scheme.

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Excerpts from India Business Hour on CNBC-TV18 Watch the full show » RELATED NEWS Budget 2010: Sunset on STPI, EOU schemes ALSO READ See latest News about Infosys See previous management interviews See what other Experts & Brokerages are saying about Infosys

Budget 2010 has brought down the curtains on the tax holiday on software technology parks of India (STPI) scheme. But CNBC-TV18's Kritika Saxena finds that the National Association of Software and Services Companies (NASSCOM) has now written to the government pushing for a minimum two-year extension.

The Finance Minister has left the IT industry concerned. With an increase in Minimum Alternate Tax and no extension of the tax exemption on software and technology parks, IT firms will see a loss of Rs 100 crore for some largecaps and Rs 200-300 crore for smaller companies according to Gartner. But the main impact will be on smaller firms.

Kris Gopalakrishnan, CEO and MD, Infosys, says, "The MAT increase may affect small and medium enterprises by 16-18%. So, what is the impact of MAT on Infosys per se? Our initial analysis shows that it may not be applicable because we are already with a tax rate of 21%."

The tax exemption on STPI ends in April 2011. With no extension in this Budget, companies established in software parks will have to pay a corporate tax of 30%, according to industry body, Nasscom.

S Mahalingam, Executive Director and CFO, TCS, says, "There will definitely be some affect. One was the Tier II and Tier II cities. How are we going to handle that because you cannot go and set up a outfit for about 10,000 and 8000 people at that place. As far as the smaller medium players are concerned, the only option they have is to move into a SEZ space."

Sources say that NASSCOM has now written to the government asking for extending the exemption by at least two years. Their argument is that smaller companies would be forced to move to SEZ's or even to other countries like Egypt, Philippines, China, and Africa which have better tax sops. This could mean a loss of up to 1 lakh jobs every year.

Not just that, smaller companies would witness a dip of 10-15% in profits annually, if the exemption is removed unless they take cost cutting measures.

Next page: Impact analysis