Brokerages expect mix of tax break policy initiatives for IT

With the IT sector in the midst of an existential crisis, industry watchers are hoping that the Budget may have something to cheer.

Brokerage houses are expecting a mix of tax breaks and policy initiatives which should help the sector regain some of its lost momentum.

Among the items on the industry’s wish-list is the extension of the benefits to Special Economic Zones.

"To make a success out of “Make in India” and “Digital India” initiatives, growth in SEZ, which attracts investments and generates foreign exchange is critical; it will place India on a global competitive edge,” writes consultancy firm Deloitte in its note on expectations of the technology sector.

"At this stage of economy, fresh investment in SEZs should be encouraged and hence the sunset clause for phasing out benefits to SEZ should be deferred for the time being,” the Deloitte note says.

Brokerage house Kotak Securities expects fresh incentives for digital transactions and investments in expansion of digital infrastructure which in turn will increase the volume of cashless digital transactions. The brokerage also expects VAT clarity for e-commerce companies, particularly for inter-state movement of goods. A common framework across states will make VAT liabilities clear and enable sales to all states, the Kotak Securities note says.

Most brokerage firms expect the government to announce steps to promote investments in IT infrastructure and to encourage IT companies to invest in research and development to create outstanding software products.

The Indian outsourcing industry, which has the largest market share of the global outsourcing market, followed by China, Malaysia and Indonesia, grew to 56 percent in FY16 from 55 percent in FY15.

In a recent guidance report, R Chandrasekhar, President of NASSCOM had stated that the IT industry needs to fundamentally transform its business models, solution offerings, organisation structure and capabilities to strengthen its market leadership position.

Going forward, revenue growth alone may not be an adequate indicator for the growing capability and capacity of the Indian technology industry and factors such as investments, valuations, digital solutions portfolio, would also need to be considered in assessing the industry performance and contribution to the economy.

Brokerage firms also expect focus of this year’s Budget to be on digital literacy, improved connectivity and access to technology supported by radical government process re-engineering.