Seminar on Budget 2008
Impact on Indirect Taxes at Bangalore
FIEO Karnataka Chapter organized a Seminar on "Budget 2008: Impact on Indirect Taxes" in association with Institute of Business Laws on 3 March at Bangalore. While welcoming more than 200 participants, Mr. Walter D’Souza, Convenor, FIEO Committee on Agro Exports and AEZ, expressed disappointment with the Budget saying it did not address any of the issues which the exporters were concerned with. He rejected the views of the Finance Minister that the rupee was unlikely to appreciate, as sharply this year as last year, and that the inflation would be contained at about 4 percent bringing in the desired relief for the exporters.
Maintaining his disappointment with the Budget, Mr. D’Souza said the export sector was expecting a concrete proposal on move towards GST but apart from reducing excise duty from 16% to 14%, the budget provides no forward direction. As appreciation of rupee, driven by huge capital inflows, rising interest rates and a weakening dollar, is hurting most of the labour-intensive export sectors, he felt that more could have done in the management of monetary policy.
Referring to the problems of agricultural sector, Mr. D’Souza said, "Investments in agriculture and rural sector are much behind the desired level. Huge investments and policy initiatives are needed to change the present agri-procurement system to offer better price to the farmers. Infrastructure like cold storages and rural roads should be built on priority basis. Greater incentives should be provided for setting up food processing industries in rural areas."
Mr. Pramod Jain, Country Manager-Taxation, Dell India, in his address demanded extension of income tax holiday under Section 10A to help small and medium enterprises and to bring parity between STP and SEZ units. "Large companies, which can afford business operations in SEZ, will continue to enjoy tax holiday while small and medium enterprises and captive operations of foreign companies will be deprived of the same without an extension of income tax holiday under section 10A for STP units," he said.
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Mr. Jain called for expeditious refund of input service tax to service exporters. He said, "The service tax cost on input services like building rentals, manpower recruitment and training, telecom, security, house-keeping, transportation is 3 to 4% of total cost for exporters of services. Despite rules being notified in April 2005 for refund of these taxes, most of the claims are being dragged by tax authorities into unwarranted litigations." In the current grim business situation, said the Dell official, for IT industry, |
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Mr.Walter D’Souza, Convenor, FIEO Committee on Agro Exports and AEZ addressing the meet. On dais from left: Mr. K Unnikrishnan, Jt. Director,FIEO(SR); Mr. P V Srinivasan, Vice President, Corporate Taxation, Wipro Ltd., Mr. Pramod Jain, country Manager, Taxation, Dell India; and Mr. V Lakshmikumaran, Advocate, M/s Lakshmikumar & Sridharan. |
which is reeling under the impact of steep wage inflation and 12% appreciation of Indian rupee versus US dollar, it has become extremely important that the refunds are granted expeditiously to help industry survive the current challenging business environment and maintain its cost competitiveness.
For making computers more affordable, Mr. Jain suggested 0% excise duty on computers and specified components to reduce computer prices by at least 10-12% and help improve India’s dismal PC penetration rate of just 2.3%, as against 8.9% of China. "Although all leading brands have their manufacturing facilities located in India, it is disheartening that the industry still imports more than 80% of components," he remarked. India’s computer hardware industry is estimated at just US$ 6 billion as against US$ 65 billion IT and ITES industry. Similarly, exports of computer hardware from India are almost non-existent as against US$ 40 billion exports from IT and ITES sectors.
"Increasing volumes of computer sales will attract large investments from component manufacturers and build an eco-system. The creation of eco-system in India will help contain forex spending on import of computers and components and reduce prices further down. A favourable tax regime will give a fillip to the demand of computers in India and India can hope to take away some share of computer export market from China." Mr. Jain added.
Mr. P V Srinivasan, Vice-President, Corporate Taxation, Wipro Limited, in his address said that the government’s proposed move to increase excise duty on packaged software to 12 per cent from existing 8 per cent might affect IT usage in the country. "The higher excise duty on packaged software could lead to increased cost of IT and could slow down the IT usage in the domestic sector. This will eventually affect small and medium enterprises which have just started deploying IT." He added.
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"The IT industry is disappointed that its demand for extension of the Software Technology Parks of India (STPI) scheme beyond 2009 was ignored in the Union Budget. Though, I am hopeful that the issue will be dealt by the government sometime later or in the next budget." Wipro official continued. The STPI scheme that provides a 10-year Income Tax exemption in software technology parks is scheduled to expire in March 2009. |
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A view of the participants. |
Mr. Srinivasan stressed that an extended tax holiday would have give some breathing space to the export-driven IT industry, which had been affected by the hardening of the rupee, increasing costs and falling margins - threatening to eventually affect employment generation in IT industry. "Smaller companies will be the worst hit as their margins will fall due to higher tax outgo. The bigger companies have managed the currency appreciation well during the last two years, but when the tax holiday ends in March 2009, it will impact the whole industry," he said. Quoting the estimates given by NASSCOM, Wipro official warned that 4,00,000 jobs might be lost in the coming three to four years due to non-extension of STPI scheme.
Leading advocate and expert in the field of indirect taxation, Mr. V. Lakshmikumaran analysed the implication of the Budget 2008 on various areas affecting the industry and exports.
