New Delhi: Since liberalization in 1991, the IT industry has been one of the biggest drivers of economic growth in India. The global opportunity to sustain these high growth rates is dependent on how long Indian environment continues to be conducive for foreign investments.
AppLabs is expecting that testing services area would be a key contributor to drive growth since it has experienced 50%-plus CAGR over the past three years.
Makarand Teje, president and COO, AppLabs
Over the past 12 months, certain issues have posed serious challenges, questioning the sustainability, especially for smaller and mid sized IT services players.
Key concerns for IT industry:
• 10%-plus appreciation of the rupee against the dollar
• Subprime and credit issues
• Ever-rising salary costs ( 60% of total cost base)
It is extremely critical that the FM looks at the current tax incentives and enhances them accordingly.
Expectations from Union Budget 2008:
• The budget looks at the sunset clause of 2009 for the current STPI scheme from a new perspective and extends the benefit beyond 2009 to atleast 2015.
• Alternatively, provide special incentives or facilities that can help transfer the existing STPI units to SEZ units
• Additional incentives to be provided for these STPI in order to be consistent with SEZ benefits. These could include exemption from dividend distribution tax and exemption from service tax which is at the rate of 12.36% on various inputs like rent, bandwidth, professional services, insurance etc. This service tax adds on to the total cost base, and there is no direct benefit that businesses derive from such a levy.
• Last year FBT was introduced on Employee Stock Options (ESOP). Talent retention is a major issue with attrition rates climbing north of 18%. Introduction of FBT on ESOPs has made the scheme relatively unattractive, and hence there is need to either abolish this or lower the tax rate.
• Introduction of minimum alternate tax (MAT) of 11.33% (including education cess) of the adjusted book profits was a big blow. This provision to be revisited and removed from next fiscal year on priority.
• It is expected that a significant allocation of budget will go towards increasing government spend on infrastructure.
Makarand Teje is president and COO of AppLabs