Excise duty on software upsets IT industry

Union finance minister P Chidambaram may have given a boost to the semiconductor industry, but the imposition of excise duty on packaged software is being viewed as a hindrance to the growth of domestic software industry.

Said Suresh Senapathy, CFO, Wipro, "From the IT industry's perspective, the encouragement envisaged to make India a manufacturing hub of IT products is welcome. The move to simplify Fringe Benefit Tax is also a step in the right direction. However, the introduction of excise duty on software products can impact the general demand and particularly, the education sector adversely."

Noted Nandan M Nilekani, president, CEO & MD, Infosys, "On the IT front, the Budget has been neutral. However, the proposed 8 per cent duty on over-the-counter packaged software impedes IT penetration to a vast majority of the masses. The review of FBT by removing certain genuine business expenditure from its purview is welcome. However, the larger administrative issue the industry is apprehensive about on FBT has not been addressed."

The industry has also welcomed the plan to increase teledensity and modernise with IT the tax administration which is long overdue. K Unnikrishnan, head (marketing), Sun Microsystems India, however, noted the negatives, "The budget doesn't view the the IT/ITeS sector the same way as tourism, textiles, food processing among others. All of them have been beneficiaries this year. The imposition of excise duty on packaged software could have ramifications, including increased piracy of software."

Terming the Budget as retrograde as far as the software industry is concerned, Alok Mishra, CFO, MphasiS, said: "The cost of both hardware and software which are business enablers will increase in the domestic market, whether domestic or imported. The impact of this on education will be adverse as the costs will increase."

He further added that from the export-oriented IT industry's viewpoint, there is little impact as the increased duties will not affect the STPI units.

However, the increased service tax will offset any benefit from the slight rationalisation in FBT. "Overall, it is a case of opportunity lost," he rued.

Terming the Budget as a positive and well-balanced one, V Sunderajan, CFO, Aztec Software, said that it was neutral on the IT industry but for a small increase in MAT (minimum alternate tax) and service tax. "The increase in service tax is expected to have an impact on the costs of the services availed by the IT industry," he highlighted.

While the excise duty imposition has left the booming software industry frowning, the announcements by FM to make India a semiconductor manufacturing hub has brought cheers to the sector. Indian Semiconductor Association president Poornima Shenoy said, "The Indian semiconductor industry would like to congratulate the FM for his proactive support to the sector. His decision to set up a committee to formulate a national semiconductor policy is timely."

This, she said, will provide India with the edge beyond VLSI and embedded design and make it the preferred destination for the manufacture of semi-conductors and other high technology IT products including wafer, assembly, test and manufacturing of semi-conductors, LCD panels and storage devices.

Shenoy further noted that the proposal to use the existing vehicles of viability gap funding and the India Infrastructure Finance Company Limited to enable equity participation and viability gap funding for new ventures are excellent schemes.

"This will help make India globally competitive with other nations. The three-year window will help accelerate early investment," she added.

ISA also welcomed the announcement of the Indian infrastructure policy with projects on international airports, investment on roads and power which will provide the needed impetus for semiconductor manufacturing "as investment towards infrastructure from government is extremely crucial for the sector's development."