Budget 2014: Tech Companies Seek Clarity on Taxes, GST Implementation

Technology companies are looking for more clarity on implementation of GST, tax on software licences and thrust on developing infrastructure in small cities in the first budget of new government led by Prime Minister Narendra Modi.

Technology majors like Microsoft and BlackBerry, software services firms, and industry bodies like Nasscom expect the Modi government to focus on leveraging information and communications technology (ICT) for economic growth and maximising the reach of policies.

"Government is already focused on improving manufacturing output. I am expecting some specific policy announcements in the Budget to improve local manufacturing like cheaper power, scalable infrastructure, one-stop regulatory clearances and long term tax incentives," Microsoft India chairman Bhaskar Pramink told PTI.

The government has already indicated boosting indigenous electronics manufacturing to check dependence on imports and has said that electronic manufacturing will be a priority.

"I also hope to see some simplification in our taxation rules. I hope government will do more to promote a tax regime that is stable and remove retrospective tax implications," he added.

He also hoped for policy direction to reduce tax disputes by implementing advance pricing agreements, accelerating mutual agreement procedures and implementing the cost plus methodology of tax on captive development centres.

"And I am looking forward to some timelines to implement GST and abolish VAT."

The new government's success will depend on stable and progressive regulatory regime, friendly investment environment, complete policy clarity and inclusive innovations, BlackBerry India managing director Sunil Lalvani said.

"A stable regulatory regime that addresses friendly taxation regime, rational fees and clarity around spectrum charges and trading, reviewing and laying a strong foundation for mergers and acquisitions will be vital for the growth of this sector," he added.

The government must take steps to drive adoption of data security on mobile devices, particularly in sectors related to finance, healthcare, etc., Mr Lalvani said.

IT hardware industry body MAIT has asked the government for exemption of special additional duty (SAD) on components used by manufacturers.

It has also suggested extended concessional excise duty, similar to mobile handset manufacturing, to boost production of PCs and tablets.

Nasscom, the body representing the $118-billion IT-BPO industry in India, said the government should work towards addressing the challenges of negative list like taxation of testing services and transactions between head office and branch office.

Nasscom has also urged the government to renegotiate tax treaties, ensure cross border transfer pricing adjustments, introduce consolidated income tax filing for Indian MNCs for easing compliance for the industry and government, revisit notified safe harbours and clarify to bring in certainty in transfer pricing assessments.

"Nasscom requests the government to clarify the royalty implication on software (both retrospective and on services), eliminate MAT on SEZ, and take steps to minimise litigations," it added.

The industry body also recommended launching an India Technology Entrepreneurship Mission (ITEM) to provide a supportive framework to technology start-ups and SMEs.

Consumer Electronics and Appliances Manufacturers Association (CEAMA) has urged the government for rapid implementation of GST in order to decrease compliance burden for businesses as well as reduce paper work while making tax system simpler and transparent.

It has also asked for removal of inverted duty structure on consumer electronics products and appliances, which is making the Indian manufacturing sector uncompetitive.

"We urge the government for provisions on the refund of accumulated Central VAT (CENVAT) after making necessary amendment in the Rule 3 of CCR 2004 leading to increased financial health and cash flow of manufacturers," it added.

The government should also pay heed to the importance of tier II and tier III cities to raise quality of employment and education, software service firm Xchanging's country manager-India, Alok Sinha, said.

"Decentralising IT hubs, recognising talent by funneling adequate funds to support underdeveloped cities will go a long way in increasing employment and levelling platform between the rural and the urban divide."

There is a need to clarify certain ambiguities in the Indian corporate tax structure in order to avoid litigations and help the IT industry function smoothly, KPIT senior vice president and head-corporate finance and governance Anil Patwardhan said.

"Our major concern in indirect tax area is that software licences procurement attract VAT as well as service tax under the existing laws. Software should be put under one category."

Procedures like renewal of SEZ unit approval, grant of 100 per cent credit, for which assessed is eligible for TDS, to be simplified through online system, Patwardhan said.

At present there is a lack of clarity on multiple policies including the transition to GST and FDI in retail, analysts say.

Greyhound Research chief executive Sanchit Vir Gogia said the lack of clarity has paralysed IT investments and decision making in many instances has stretched to over four quarters.

"This continues to plague organisations in BFSI, Retail, Manufacturing and multiple other verticals that have a high degree of dependence on such policies," he added.