Small and medium enterprises (SMEs) have just got a reason to celebrate. The Union Minister for Information Technology and Communications, A Raja, said last week that his ministry had recommended to the Union Cabinet and the Finance Ministry that the tax rebate currently applicable to Software Technology Parks of India (STPI) should be extended beyond 31 March 2010.
The STPI scheme, a 10-year tax-holiday for IT companies, which was to have ended in March 2009, was extended for a year till March 2010.
Mr Raja indicated on the sidelines of Connect 2009, an ICT event organised by Confederation of Indian Industry (CII) last week, that it might be extended for another three years.
Omkar Rai, senior director at STPI, told Business Standard that about 8,000 units are registered with STPI, of which 60-70 per cent were SMEs. Total IT/ITeS exports in 2008-09 were about $47 billion (Rs 235,000 crore), of which 90 per cent is by STPI-registered units and SMEs’ contribution is about 30 per cent.
Most of these units are export-dependent and their order books and profits were hit by the global downturn. The proposed tax rebate extension would provide them interim relief and enable them to save 30 per cent of their total revenue.
Narayanan Ramaswamy, executive director, advisory services, KPMG Advisory Services, noted that “the extension is much needed”. One reason why the industry grew is government support. The proposed extension would make SMEs cost-competitive and increase job opportunities, he noted, because for every direct job created it means the creation of six indirect jobs, and this would help sustain the momentum of industry.
S Mahalingam, chief financial officer, Tata Consultancy Services, said the extension is a good idea, since lots of expansion happened between 2003 and 2008 and many of those units will not get the full benefit of the rebate if there is no extension. The proposed extension will be valid from 2011 to 2014, he noted, adding that if a unit started in 2004-05, it would have had the benefit only for six years, and now the unit will get the benefit for ten years.
Kris Gopalakrishnan, chief executive officer of Infosys, added that it would help only if the 10-year old holiday is extended to 13 or 15 years, since most STPs had come out of the 10-year period. As of now the benefit is available only for new units, but it should be extended to existing units with a term of 13 or 15 years, he said.
S R Ram Charan, chief financial officer, Photon Infotech, which has a unit inside a STPI at Chennai, stated that one factor that makes SMEs stay away from STPIs is “uncertainty about when the government will bring in new taxes.” For instance, minimum alternate tax (MAT) takes away 12 per cent of revenue. So the actual saving is only 18 per cent. The government should think about removing MAT for STPIs and should also consider relaxing norms when SMEs want to migrate to STPIs, he said.
