Large as well as medium IT enterprises have invested in infrastructure in an SEZ believing that the government would be consistent in their fiscal policies. The critical reasons why it is not possible to exit these spaces in a short span are:
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Investments in interiors, piping for air-conditioning and power and furnishing are not removable; therefore, would need to eb repeated while moving out;
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Most leases specify a minimum or lock-in period that varies between 3 and 5 years; exit within those period involve penalty; and
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Accreditations under ISO 9000 or 27000 ; as well as connectivity permissions from clients are location specific; it is hard to secure for a new place and may warrant anywhere between 6 months and a year to secure them if a change is needed.
Suggestion: The concession required is to remove the applicability of MAT for such entities.
Budget - Not Addressed
2. Assistance in funding
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IT is a significant contributor to our exports accounting for more than a quarter. The merchandise exporting units qualify for concessional finance for pre and post shipment credit when compared to the normal commercial lending. Also, most of the small and medium IT enterprises do not have much to offer as collateral.
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Suggestion: Some of the latest entrants require working funds from banks for undertaking their operations. The benefits of concessional interest and lower collateral to their financing should be extended to IT units as well. Also, term lending on relaxed collateral terms need to be extended for their capital requirement.
- Budget: 72. The Small and Medium Enterprises (SMEs) are the building blocks of our economy. They rely primarily on loans from banks and informal sources to raise capital. To enable these enterprises greater access to finance, two SME exchanges have been launched in Mumbai recently.
3. Assistance during the difficult time
There is a lot of uncertainty during the financial crises in the Euro zone. This is accentuated by low or negative growth in most markets. Most of the high growth economies have some barriers to trade and therefore are not accessible at all or at elast for small and medium enterprises. The IT industry is moving in to a low growth phase, perhaps for the first time, in its life cycle in India. : It therefore requires the all the support in order to enable it to come through this phase in good shape.
Suggestion : The chief steps or initiatives that would help are:
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IT product development should be given special concessions under tax; a rebate at 150% of the expenditure, both capital and revenue, should be extended;
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The rate of depreciation for computer equipment and software should be 60% of their cost;
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Benefits of Sec 72A of the income tax relating to carry forward and set off of business loss in the case of amalgamation or merger should be extended to IT as well;
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There is going to severe currency exchange rate fluctuation in the next few years. In order to help the SME in the IT industry, a fixed exchange support mechanism for dealings in key currencies should be extended; and
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In order to encourage IT product development and the consequent intellectual property rights (IPR) creation, Employee stock option scheme (ESOP) of such companies should be exempt from tax.
Budget : 146. To promote investment in research and development, it is proposed to extend the weighted deduction of 200 per cent for R&D expenditure in an
in-house facility beyond March 31, 2012 for a further period of five years.
4. Share in the growing domestic IT market
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IT is and has been an export led segment. Only in the last three years, the domestic IT spend is reaching a scale warranting the service providers to focus on this segment. This prejudices the small and medium enterprises who have been focusing on the domestic market for a long time.
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Suggestion: A large part of the expenditure is being met by government and their owned enterprises. They should earmark, say, 15-20% of their spend to come from Small and Medium enterprises (SME) who should be provided a 15% price advantage. This is no different from what is prevalent for sourcing goods.
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Budget: 73. With the objective of promoting market access of Micro and Small Enterprises, Government has approved a policy which requires Ministries and CPSEs to make a minimum of 20 per cent of their annual purchases from MSEs. Of this, 4 per cent will be earmarked for procurement from MSEs owned by SC/ST entrepreneurs.
5. Corrective measures
There is a confusion regarding packaged software- whether it is a good or a service. The surcharge and education cess were introduced as interim measure.