In a meeting with Minister for Parliamentary Affairs, Communications
and Information Technology Pramod Mahajan on 29 January,
the Confederation of Indian Industry (CII) outlined a 15-point
agenda for the IT-enabled services (ITeS) industry.
suggestions to the minister covered regulatory, infrastructural
and procedural issues on one hand, and direct tax-related issues
on the other. The CII team at the meeting included CII (national
committee on IT) chairman and Hewlett Packard president Arun
Thiagarajan, Hero Corporate Services MD Sunil Kant Munjal,
Spectramind CEO Raman Roy and Wipro Infotech president Sunil
CIIs package of the
measures to encourage the sector were based on the tremendous
potential that it offers in terms of employment, especially for
women, as well as foreign exchange earnings for the country. The
regulatory, infrastructural and procedural issues, which are
critical to encouraging the growth of the sector, according to CII
- The need to appoint a
single, national-level licensing and monitoring authority for
the ITeS industry that can provide approvals for
multi-facility operations all at once.
- Provision for sharing
of bandwidth within same entities and group companies in
- Approval for each new
customer with DoT to be removed.
- Allowing Internet and
international private-leased circuit (IPLC) connectivity on
the same LAN.
- Removal of bandwidth
- Declare ITeS as an ISP
and allow owning their satellite gateways.
- Introduce option to
buy and sell reserve bandwidth.
- Need to categorise
ITeS as a special service under labour laws to allow 24X7
operations, including night and shift operations.
The need for a single,
national-level licensing and monitoring authority stems from the
fact that currently, for start-up organisations in ITeS, the
application for license has to be made to multiple authorities.
The provision for sharing of bandwidth within same entities and
group companies in India, allowing Internet and IPLC connectivity
on same LAN, and declaring ITeS as an ISP to allow them to own
their satellite gateways, will solve many of the
infrastructure-related problems that the sector faces today.
A procedural bottleneck that companies in the ITeS sector face
relates to taking DoT approval for signing each and every new
customer, which leads to unnecessary delays and restricts
organisations in signing new customers. CII has recommended that
approvals from DoT should not be customer specific and may be
specific to point of presence (PoP) at the place of termination.
A unique problem that the sector faces and which relates to a
fundamental characteristic of the industry is that of providing
service seven days a week, 24 hours a day therefore the need
for employees to work round the clock. Currently, labour law
restrictions, especially for women employees, and inconsistencies
across various states have lead to inefficient utilisation of
capacity, CII said.
The direct tax issues for the sector, which need to be resolved,
include provisions in the Income Tax Act for corporate
restructuring, transfer pricing, copyright and royalty-related
issues and tax deducted at source on salary for employees in a
company engaged in ITeS.
Sections 10A and 10B of the Income Tax Act provide a 10-year
tax-holiday to any industrial undertaking in free trade zones (FTZs)
for the manufacture of "any article, thing or computer
software for export purposes." Sub-section 9 of Section 10A
and 10B denies the benefit of Section 10A to an undertaking, where
there is a change in ownership of beneficial interest in the
If the eligible undertaking is held by a closely-held company and
if such a company is acquired by another widely-held company, the
benefit under Section 10A in respect of the undertaking will not
be available. To enable ITeS companies to engage in genuine
restructuring and reorganisation, CII is of the opinion that
Sub-section 9 of Section 10A and 10B should be withdrawn with
To encourage the growth of the ITeS sector, many of the provisions
under transfer pricing rules and regulations including flexibility
in determining the arms length price in an international
transaction and the penal provisions affect need to be reviewed.
On royalty related issues, CII has stressed the need for necessary
clarification by CBDT, to the effect that license payments made
for the use of software, for the payers own operation, being
payments for use of copyright article, are outside the ambit of
On TDS, the current requirement to claim back excess tax
withholding, by way of refund claims, leads to significant cash
flow constraints for employees, since refunds generally take two
to three years after the initial tax deductions. CII has asked for
a clarification to be issued to permit employers to consider
credit for foreign taxes, in determining taxes to be withholding
from the employees salary in India.
Finance Act 2001 levied a 5-per cent service tax on the value of
taxable services provided to a subscriber by the telegraph
authority in relation to a leased circuit. Effective 16 July 2001,
a 5-per cent service tax is leviable on connectivity charges paid
in respect of leased circuits. CII argues that the levy was
pushing up the cost of connectivity charges, which are anyway
higher than the international rates, adding to a competitive