IT industry body NASSCOM has submitted its pre-Budget memoranda to Finance Minister Nirmala Sitharaman, seeking tax cuts, a “deep tech” fund as well as extension of the sunset clause provided to the sector.
“For the IT industry to thrive and be more competitive, the government should extend the corporate tax rate of 15 percent to new services companies in SEZ as well,” NASSCOM said in its note.
The request follows the government’s decision earlier this year to cut corporate tax rate to 15 percent for manufacturing startups.
The Indian IT industry draws about 75 percent of its revenues from exports. IT exports also constitute the most important chunk of India’s overall exports: about 67 percent.
But the Indian IT industry faces significant challenges from other developing countries, which are looking at eat away at the export pie through lower tax rates.
Compared to India’s headline 25 percent corporate tax rate, China’s incentivized tax rate for tech and IT sector is 15 percent, Sri Lanka stands at 14 percent, Vietnam charges 10 percent for the first 15 years while Philippines levies zero tax for the first four to six years and 5 percent beyond that, NASSCOM said.
The body also suggested creating a deep tech investment fund of Rs 3000 crore over the next five years. Deep tech startups are loosely defined as those that develop ground-breaking technologies and could potentially have a high impact.
In addition, the report pointed out that the government should extend the sunset clause of the IT Act for SEZs another five years. The clause that allows Income Tax exemption to SEZs (where most of the IT firms are housed) will end on March 31, 2020.
Also, about 58 percent of the operational SEZs in India are from IT/ITeS, electronic hardware and telecom equipment. Hence any removal of incentives will impact investments, according to the NASSCOM report.
Ashish Agarwal, senior director - public policy, NASSCOM, said, "India’s advantage is its talent base and ability to scale. In the light of slowdown and increasing global competitiveness, extending the sunset clause will be a big boost to services sector."
Other areas of concern include lack of incentives for engineering R&D that nurture innovation. While the space has seen improvement in the last 10 years, more needs to be done to showcase India’s capability in the design space, said Agarwal.
This includes increasing R&D spend from 0.6-0.7 percent of GDP to 2 percent through tax policies and government support.