The government today announced one-year extension of the tax holiday scheme for software exporting firms up to March 2011 and removed the fringe benefit tax, which was immediately applauded by the industry.
The announcement, however, failed to cheer the IT stocks with BSE IT index trading down 1.93 per cent at 3,263.03 in the afternoon trade.
"In order to tide over the slowdown in exports, I propose to extend the sunset clauses for these tax holidays by one more year — financial year 2010-11," Finance Minister Pranab Mukherjee said in his Budget speech today.
The scheme was due to expire on March 2010.
Nasscom President Som Mittal welcomed the extension and said that though the industry had asked for a five-year break, for short term, the one-year tax holiday is well-timed to tide over the slowdown.
The country's second-largest software exporter Infosys, however, said, the impact is limited as most STPs would have come out of tax holidays but it is a good gesture of the government.
BPO firm Genpact's CEO Pramod Bhasin said the extension is a good move at time when the industry is facing pricing pressure and volumes are down.
The government has also scrapped the FBT, which was mostly affecting the IT and ITeS industry. With the tax gone, the Employee Stock Options will get attractive.
The levy of FBT had caused a lot of debate and disillusion, Mittal said.
FBT was introduced in the Finance Act 2005, on value of certain fringe benefits given by the employer to their employees.
"This tax has been perceived as imposing considerable compliance burden," Mukherjee said.
Mittal said the removal of FBT would go a long way for the growth of the industry, while Infosys' Gopalakrishnan said its removal is beneficial for the IT industry.
The government has also exempted the packaged softwares from companies like Microsoft (Windows) and Oracle (ERP) from excise duty and CVDs, which could make the prices of these softwares cheaper and affordable for small IT firms.
Mittal said that broadly, the prices should fall for these software products but a lot would depend on the exact fine print of the Budget announcement.
Nasscom also welcomed the government decision to set up an alternative tax dispute addressal mechanism within the Income Tax department for foreign companies, especially in the IT sector, for the resolution of transfer pricing issues.
This was a long-pending demand of the industry.
Now, CBDT would formulate safe harbour rules for these companies, as per the proposal.
