Mumbai: NASSCOM has submitted a pre-budget 2008 memorandum to the Ministry of Finance, citing its wish list and concern areas that it would like addressed in the upcoming budget.
According to NASSCOM's memo, the top five most critical issues are:
1. Continuation of STPI Scheme beyond 2009
2. Broadening the eligibility criteria for Large Tax Payer Unit (LTU) scheme
3. Foreign Tax Credits
4. Advance Pricing Agreements (APA) to provide upfront tax certainty
5. Refund of service tax paid on services utilised for export of computer software and BPO services
For the continuation of STPI scheme beyond 2009, NASSCOM cites that the scheme has been ''a big success and a major contributor to the growth of Indian economy'', with IT-BPO exports of $32 billion, accounting for 1.6 million direct hires. Additionally, it says that smaller companies are finding it difficult to rent SEZ space as adequate capacity is not always available in the right location, along with astronomical rentals. Most SMEs are immobile from their present bases, and with BPO companies expanding operations to Tier 2 and Tier 3 cities, where there are no SEZs, the problem is compounded. NASSCOM says that the STPI program enables dispersal of industry, allowing entrepreneur to decide where to set up their businesses, spreading wealth and employment.
NASSCOM suggests that STPI scheme be continued, with tax incentive under section 10A/10B for next ten years. It would like to see the STP tax holiday removal for IT sector (not the BPO sector) linked to the signing of the totalisation agreement with the US government, basis the recommendations of the Kelkar Committee, as this is a substantial cost that renders Indian IT companies at a competitive disadvantage vis-à-vis global peers.
For broadening the eligibility criteria for large tax payer unit (LTU) scheme, NASSCOM says the current criteria is very restrictive, with several very large IT entities not entitled to join the scheme. NASSCOM suggests that since TDS on salaries and vendors is a statutory obligation cast on companies, to ensure efficient tax collections, the eligibility criteria may be expanded to include those companies which make annual remittances of Rs50 crores or more as TDS.
Citing the case for foreign tax credits, NASSCOM suggests that relevant provisions are incorporated in the domestic law to provide a mechanism for allowing full tax credit. For the advance pricing agreements (APA) to provide upfront tax certainty, NASSCOM suggests that suggest that such an APA mechanism be included in the next Indian budget and that resources be provided to the new APA office to allow them to process the required rulings.
NASSCOM also wishes for a refund of service tax paid on services utilized for export of computer software and BPO services, saying that service tax on input services consumed in software and BPO business amounts to around 3 per cent of business cost, which is a significant number when
Indian companies have to compete in international market. The agency says that many countries like UK, Ireland, China, Singapore etc have a provision for refund of input taxes.
Among other points, NASSCOM would also like addressed through circulars and clarifications, the issue of FBT on ESOPs, and import of services.